TIDM7DIG
RNS Number : 3728A
7digital Group PLC
29 September 2020
29 September 2020
7digital Group plc
("7digital", "the Group" or "the Company")
Full Year Results
7digital Group plc (AIM: 7DIG), the global leader in B2B
end-to-end digital music solutions, announces its audited full year
results for the year ended 31 December 2019.
Financial Summary
-- Revenue of GBP9.3m (2018: GBP19.9m)
-- Revenue from continuing operations * : GBP8.2m (2018: GBP9.3m)
-- Gross profit of GBP6.3m (2018: GBP14.7m)
-- Gross margin of 67.7% (2018: 74.0%)
-- Gross margin from continuing operations * : 64.0% (2018: 62.0%)
-- Operating loss reduced by 54% to GBP5.6m (GBP12.1m)
-- Adjusted EBITDA loss of GBP2.8m (2018 restated: GBP2.5m)
-- Loss per share reduced by 84% to 0.47p (2018: 2.97p)
-- Successfully delivered annualised cost savings of more than
GBP6.0m, reducing operational cost run rate by over 50% since
beginning of the year
*After excluding the termination of Juke contract (major
customer) during the year
Operational Highlights
-- Received EUR4m settlement from MediaMarktSaturn over Juke
contract and agreed sale of select unprofitable technology and
staff to TDC Group for EUR1.375m
-- New Board in place since July 2019 led by Tamir Koch and
David Lazarus, both experienced businessmen widely recognised for
technology entrepreneurship and executive leadership
-- GBP4.1 million invested in 2019, rising to GBP5 million in
first 12 months since taking charge, to reposition the company,
stabilise the business and secure future growth
-- Paul Langworthy promoted to CEO and Michael Juskiewicz
appointed CFO to oversee implementation of new strategy
-- Repositioned 7digital as a music technology company and the
global leader in B2B music solutions
-- Streamlined the technology offering - supporting both
established markets and new business models and verticals with
greater profit margins
-- New contract wins, contract expansions and renewals show
growing demand for digital music services in new entertainment
formats
Tamir Koch, Chairman of 7digital, commented: " Upon taking over
the Group halfway through the year, the new Board set in motion a
transformation programme to bring the business to break even as
quickly as possible. Our plan was to build a business around
best-in-class technology, a global music catalogue and music
industry expertise. We provided the required financial support to
move the business forward, reduced our cost base by moving away
from the development of bespoke, customer-specific services and
focused on delivering a world-leading, cloud-based, music
platform-as-a-service that offers true global coverage at scale.
The business is now on a much more stable financial footing,
winning market share in strategic growth industries, and the Board
is very excited about the future."
Paul Langworthy, CEO of 7digital, commented: "Having realigned
our strategy around our leading technology offering, we have been
able to capitalise on the growing demand for digital music services
and enjoy meaningful growth and significant revenue opportunities
from the fastest-growing sectors in social media, online fitness
and artist monetisation. The strength in our core business paired
with financially supportive majority shareholders and an extensive
pipeline of deals, gives us full confidence in our long-term growth
and sustainability in 2020 and beyond."
The Company will today be publishing its 2019 Annual Report and
Accounts. This will be available to download from the investor
relations section of the 7digital website at
www.7digital.com/reports and will be posted to shareholders.
Enquiries
7digital 020 7099 7777
Paul Langworthy, CEO
Arden Partners (Nominated Adviser and Broker) 020 7614 5900
Richard Johnson, Benjamin Cryer
Luther Pendragon (Financial PR) 020 7618 9100
Harry Chathli, Joe Quinlan, Elliot Fradd
About 7digital ( www.7digital.com )
7digital is the global leader in B2B end-to-end digital music
solutions. The core of its business is the provision of robust and
scalable technical infrastructure, licensing expertise and
extensive global music rights used to create music and music video
streaming and radio services for a diverse range of customers.
These include consumer and social media brands, online fitness
technologies, mobile carriers, broadcasters, automotive systems,
record labels and retailers. 7digital also offers radio production
and music curation services, editorial strategy and content
management expertise.
7digital fosters industry growth and innovation by simplifying
access to music for clients. From years of being the largest
independent producer of programming for the BBC and powering
services for partners like Triller, Soundtrack Your Brand, Global
Eagle, GrandPad and Fender, 7digital is perfectly positioned to
lead innovation at the intersection of digital music and
next-generation radio services.
Operational Review
In 2019, 7digital secured new investment and installed a new
Board and management team to stabilise the business and position it
for future growth. In the second half of the year, the new Board
implemented a series of critical changes and refocused resources to
turn around the Company and ensure it could fully support its
customers and employees. By taking advantage of the core technology
and industry relationships, the management team and Board
successfully worked together to lay the foundation for how 7digital
positions, sells, develops and delivers its technology to current
and future clients. The Group won new business, streamlined
operations, returned to financial stability and set on a path to
financial stability.
By contrast, in the first half of 2019, the Group was
significantly impacted by the loss of its largest contract with
European retailer MediaMarktSaturn ("MMS") to provide the music
streaming service for its wholly-owned subsidiary, Juke
Entertainment Gmbh ("Juke"). The Group had to take immediate action
and agreed the sale of select technology from the Company and the
transfer of staff to TDC Group for a total consideration of
EUR1.375m in cash. This technology, which was only used by one
customer, had become unprofitable to maintain.
As a result of the changes and progress made in the second half,
the Board is pleased to report that the Group's revenue from
operations (after adjusting for the loss of the Juke contract)
declined only by 12% in 2019 to GBP8.2m. However, gross profit on
the same basis increased by 2% to GBP5.2m. The statutory operating
loss for 2019 decreased by 54% to GBP5.6m (GBP12.1m).
Investment and Refocused Strategy
From June 2019 onwards, the Group welcomed investment from a
consortium comprising Magic Investment S.A. and Shmuel Koch
Holdings Limited, led by Tamir Koch and David Lazarus who joined
the Board as respectively Non-Executive Chairman and Non-Executive
Director in July 2019. This group of successful entrepreneurs and
business leaders has provided the required financial support to
move the business forward, including a GBP5m cash injection in the
first 12 months of taking charge of the Group. However, the new
Board also recognised that a change of strategy and management team
was required to suit the changing business environment. Paul
Langworthy, the Group's former Chief Operating Officer, was
appointed Chief Executive Officer and set about a plan to bring the
business to break even as quickly as possible.
This new strategy recognised that 7digital is foremost a
technology company rather than a media company. It has allowed the
Group to considerably reduce its cost base by moving away from the
development of a bespoke, customer-specific service to focus on
delivering a highly productised technology offering. This contrasts
with previous strategies where the Company implemented bespoke
solutions for a diverse range of customers often with divergent
needs, leading to unprofitable business at higher risk. From an
operational standpoint, the new strategy has enabled 7digital to
streamline its technology estate as well as the associated costs
and staffing levels. The Group also retired a number of legacy
radio technology services that were no longer strategic for
7digital and improved its technology efficiency through the use of
cloud-based services. As a result, the Group was able to reduce its
operational cost run rate by over 50% since the beginning of 2019
and successfully deliver annualised cost savings of over GBP6.0
million.
With a more stable financial platform in place, the Group has
been able to focus on delivering a world-leading, cloud-based,
music platform-as-a-service that provides true global coverage at
scale. By moving from bespoke modular solutions to a highly
productised technology offering, 7digital is now able to support a
myriad of business use cases while operating with much greater
profit margins.
Winning New Business and Renewing Important Contracts
In spite of a difficult year and poor market sentiment, the
Group was able to renew existing customer contracts and sign new
deals with a number of innovative companies in fast-growing
sectors.
7digital signed an initial one-year deal with Dubset, a rights
technology company that identifies and collects royalties within
mix content. The Group also entered significant partnerships in
fast-growing sectors.
The Group was also awarded an initial one year-long contract to
provide its Music Platform-as-a-Service in support of an innovative
new music streaming company. The full premium service was launched
in a single European market and is in the process of rolling out to
several additional countries.
This commercial momentum accelerated post-year end as the
Group's Music Platform-as-a-Service was used to launch jazzed, the
world's first dedicated audio-visual streaming service for jazz and
jazz-influenced music. This deal epitomises the growing opportunity
for premium streaming services catering to more specific tastes,
genres and geographies.
In addition to jazzed, the Group has signed multiple new
contracts and contract renewals. This includes a new contract to
power Single Music, a Shopify-integrated, direct-to-fan
distribution platform as well as a contract renewal with GrandPad,
the first purpose-built tablet for people over the age of 75. The
Group has also renewed its contract with major music label to
support its streaming service through a French mobile carrier, and
fan-facing music playlist service.
Financial Review
On 4 January 2019, the Group announced that its largest
customer, MediaMarktSaturn, had indicated that it may wish to
change the current arrangements and that this could involve
7digital taking more responsibility for certain aspects of the
service or the service being closed with a resulting termination
payment becoming due and payable to the Group. On 1 March 2019,
7digital announced that it had accepted settlement of, and release
from, all outstanding contracts and commitments relating to the
Juke music service for an immediate payment by Juke of
EUR4,000,000. Further, Juke agreed to write off all interest
payments and GBP250,000 of the principal amount of the convertible
loan note issued to Juke (as announced on 26 October 2018).
7digital settled a further GBP500,000 balance of the convertible
loan note principal amount from the proceeds of the Agreement.
Following the loss of the MMS contracts, the platform was used
by only one customer and had become unprofitable for the Group to
maintain. On 2 May 2019, the Group announced the sale of bespoke
technology from the Danish business and transfer of staff to TDC
Group ("TDC"), the largest telecommunications company in Denmark.
The sale transferred control of bespoke technology, and the
resources to maintain it, to TDC.
The consideration was EUR1.375 million, of which GBP1.0 million
was paid to 7digital in cash during 2019 being equivalent to the
net value of the assets sold. The remainder of the cash
consideration was retained by TDC to cover certain potential
liabilities of which GBP47k was released by TDC to the Group in
April 2020 to the extent that it is not required to meet such
liabilities and is subject to customary post-closing adjustments.
The annualised losses eliminated from the business totalled around
GBP1.6 million. This sale meant that 7digital would focus its
resources on its productised, cloud-hosted technology.
On 13 May 2019, Magic Investments S.A. (a technology investment
holding company) ("Magic") bought the remaining loans from the
existing shareholders at face value of GBP0.6 million.
On 7 June 2019, a consortium, comprising Magic and Shmuel Koch
Holdings Limited ("SKH") subscribed for, an aggregate of,
634,132,641 shares at 0.01 pence per share, to raise GBP1.3 million
(before expenses). On the same date, Magic agreed to capitalise the
outstanding GBP585,932 principal and accrued interest of the
Convertible Loan Notes at the Exchange Price of 0.02p into
332,915,704 shares with a discount of 12%. A number of changes to
the Board were proposed, conditional upon the passing of the
Resolutions at the General Meeting held on 25 June 2019.
On 18 July 2019, Paul Langworthy, the Group's current Chief
Operating Officer and key contributor to the revised business
strategy, succeeded John Aalbers as Chief Executive Officer and as
a Director of the Group. Michael Juskiewicz, the CFO of eMusic,
joined as Chief Financial Officer and was appointed to the Board on
20 September 2019.
On 20 September 2019, the Group announced that it had raised a
further GBP1.88 million through a subscription of 937,900,000 new
Ordinary shares of 0.01 pence to new and existing shareholders.
On 25 September 2019, the Group announced that it had completed
an oversubscribed conditional Placing. The Placing of 130,848,460
new Ordinary Shares raised approximately GBP0.3 million (before
expenses) at an issue price of 0.01 pence per share on 4 October
2019.
During the year, the Group secured a total of GBP4.1 million
(gross) in funding.
Results and Financial Key Performance Indicators
The Group's revenue from operations (after adjusting for the
loss of the Juke contract as shown on the table below) declined by
12% in 2019 to GBP8.2m (2018: GBP9.3m).
On-going gross profit% increased to 64.0%, a rise of 2
percentage points to GBP5.2m, as a result of growth in high-margin
B2B licensing revenues which now represents a greater share of the
total sales mix. The statutory operating loss for 2019 decreased
54% to GBP5.6m (2018: GBP12.1m). The adjusted EBITDA loss for 2019
increased 10% to GBP2.8m (2018: GBP2.5m) and this is reconciled to
the operating loss in note 6.
The decrease in 2019 statutory operating loss is due to decrease
in administration expenses by 52.1%, largely due to the significant
payroll and technology cost reductions implemented by the new
management under Paul Langworthy, the incoming CEO, to align the
business with the new strategy going forward.
The loss per share decreased by 84% to 0.47 pence (2018: 2.97
pence).
Revenue 2019 reported 2019 ongoing* 2018 reported 2018 ongoing* Change ongoing* Change
GBP'000 GBP'000 GBP'000 GBP'000 ongoing*
%
Licensing revenue 5,341 4,227 13,410 4,046 181 4%
Content 2,390 2,390 3,933 2,704 -314 -12%
Creative 1,572 1,572 2,569 2,569 -997 -39%
-------------- -------------- -------------- -------------- ---------------- ----------
Total Revenues 9,303 8,189 19,912 9,319 -1,130 -12%
-------------- -------------- -------------- -------------- ---------------- ----------
Gross Margin 6,297 5,239 14,727 5,816 -577 -10%
Gross Margin% 68.0% 64.0% 74.0% 62.0% +2.0%
-------------- -------------- -------------- -------------- ---------------- ----------
Expenditure
Administrative expenses 2019 2018 Change %
GBP'000 GBP'000
Underlying Administrative
Expenses 11,235 19,918 -8,683 -43.6%
Other Adjusted Administrative
Expenses 1,802 7,305 -5,503
--------- --------- -------
Total Administrative expenses 13,037 27,223 14,186 -52.1%
--------- --------- -------
*After excluding the termination of Juke contract (major
customer) during the year
Other Adjusting Items
Other adjusting items for the year totaled GBP1.8m of which
GBP0.7m relates to corporate restructuring, GBP0.5m to legal fees
relating to fund raising and contingency planning, GBP0.4m of
expenses and provisions relating to the closure of the Danish
business and GBP0.2m as a legal provision for an ongoing litigation
issue.
Dividend
During the year, 7digital did not pay an interim or final 2019
dividend (2018: no interim or final 2018 dividend). The Board of
Directors is not proposing a final dividend in the current
year.
Shareholder Loans
On 8 February 2019, the Group received notice of conversion from
one holder in respect of GBP193,858 (including interest) of the
Facility at a conversion price of 1p pursuant to which 19,385,843
ordinary shares were issued. Following conversion, an aggregate of
GBP1,311,691 of the facility remained outstanding.
On 1 March 2019, the Group agreed to a EUR4m settlement from MMS
under the MMS Settlement Agreement noted above. Out of the loan
payable of GBP0.75m plus accrued interest of GBP27k, GBP0.5m was
settled against the above EUR4m and GBP0.25m, together with the
accrued interest of GBP27k, was forgiven by MMS. Following
settlement of MMS's share of the Facility, an aggregate of
GBP561,691 of the facility remained outstanding.
On 11 April 2019 the Group received a notice from the holder in
respect of a tranche of the Facility, due to non-payment of
interest. The Notice related to outstanding Facility and interest
amounting to GBP325,570. Following receipt of the Notice, the
outstanding amount became due and payable by 3 May 2019. The
remaining tranche under the Facility of GBP0.25m plus accrued
interest remained outstanding to another loan note holder.
On 13 May 2019 the remaining Facility was sold to Magic. Magic
entered into a standstill agreement with the Group pursuant to
which it agreed not to seek early redemption or conversion of the
Facility before 30 June 2019 except in certain limited
circumstances (including a major equity issuance or the insolvency
of the Group).
On 7 June 2019 Magic agreed to capitalise the outstanding
GBP585,932 principal and accrued interest of the Facility held by
it into 332,915,704 new Ordinary Shares (at a 12 per cent. discount
to the Issue Price).
Cash and Cash Flow
As of 31 December 2019, the Group had a cash balance of GBP0.1m
(2018: GBP0.5m).
Net cash outflows in 2019 totalled GBP0.3m (2018: outflow
GBP6.4m). The reduction was largely driven from a decrease in
operating cash outflow of 38% as a result of the effective cost
reduction efforts implemented by the new management team, issuance
of share capital to the consortium and the sale of the Danish
platform.
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE
INCOME
Year ended 31 December 2019
Year to 31 Year to 31 Dec
Dec 2019 2018
Notes GBP'000 GBP'000
Revenue 2 9,303 19,912
Cost of sales (3,006) (5,185)
Gross profit 6,297 14,727
Other Income 5 1,103 371
Administrative expenses (13,037) (27,223)
Adjusted operating loss 6 (3,358) (4,599)
- Share based payments 26 (239) (173)
- Foreign exchange (238) (48)
- Other adjusting items 3 (1,802) (7,305)
------------- -----------------
Operating loss 4 (5,637) (12,125)
Finance income 9 - 31
Finance cost 9 (172) (101)
-------------
Loss before tax (5,809) (12,195)
Taxation on continuing operations 10 (3) 334
Loss for the year attributable
to owners of the parent company (5,812) (11,861)
============= =================
Loss per share (pence)
Basic and diluted 11 (0.47) (2.97)
============= =================
Consolidated Statement of Comprehensive Income
Year to 31 Year to 31
Dec 2019 Dec 2018
Notes GBP'000 GBP'000
Loss for the year (5,812) (11,861)
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations 22 184 (43)
Other comprehensive loss (5,628) (11,904)
Total comprehensive loss attributable
to owners of the parent company (5,628) (11,904)
=========== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2019
2019 2018
Notes GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 12 - 1,175
Property, plant and equipment 13 51 128
Right-of-use assets 14 1,321 -
1,372 1,303
--------- ---------
Current assets
Trade and other receivables 16 1,631 5,784
Contract assets 2 255 458
Cash and cash equivalents 149 461
2,035 6,703
--------- ---------
Total assets 3,407 8,006
--------- ---------
Current liabilities
Trade and other payables 17 (7,009) (9,739)
Loans and borrowings 18 - (1,306)
Derivative liability 18 - (257)
Contract liabilities 2 (335) (1,149)
Lease liability 14 (472) -
Provisions for liabilities
and charges 19 (768) (303)
(8,584) (12,754)
--------- ---------
Net current liabilities (6,549) (6,051)
--------- ---------
Non-current liabilities
Other payables 17 (676) (1,066)
Contract liabilities 2 (7) (141)
Lease liability 14 (1,186) -
Provisions for liabilities
and charges 19 - (125)
(1,869) (1,332)
--------- ---------
Total liabilities (10,453) (14,086)
--------- ---------
Net liabilities (7,046) (6,080)
========= =========
Equity
Share capital 21 14,817 14,420
Share premium account 21 12,043 8,294
Other reserves 22 (2,845) (3,268)
Retained earnings (31,061) (25,526)
--------- ---------
Total deficit (7,046) (6,080)
========= =========
CONSOLIDATED CASHFLOW STATEMENT
Year ended 31 December 2019
Year to 31 Year to
Dec 2019 31 Dec 2018
Notes GBP'000 GBP'000
Loss for the year (5,812) (11,861)
Adjustments for:
Taxation 10 3 (334)
Finance Cost 9 172 101
Profit on sale of fixed assets (125) (11)
Foreign exchange 4 238 48
Amortisation of intangible assets 12 228 1,839
Amortisation of right-of-use asset 14 415 -
Depreciation of fixed assets 13 77 251
Impairment of intangible fixed assets 12 - 3,946
Impairment of tangible fixed assets 13 - 131
Share based payments 26 239 173
Increase/(decrease) in provisions 19 340 (9)
Decrease in accruals and deferred
income (1,190) (3,639)
Decrease in trade and other receivables 3,793 778
(Decrease)/increase in trade and
other payables (2,658) 1,732
----------- -------------
Cash flows used in operating activities (4,280) (6,855)
Taxation 10 19 (44)
Interest income received 9 - 1
Interest expense paid 9 (31) (39)
Net cash used in operating activities (4,292) (6,937)
Investing activities
Purchase of property, plant and equipment,
and intangible assets - (1,000)
Proceeds from sale of intangible
and tangible fixed assets 1,073 11
----------- -------------
Net cash generated/(used) in investing
activities 1,073 (989)
----------- -------------
Financing activities
Proceeds from issuance of share capital
(net) 3,313 -
Proceeds from issuance of shareholder
loans 18 - 1,500
Principal paid on lease liabilities 14 (352) -
Net cash generated from financing
activities 2,961 1,500
----------- -------------
Net decrease in cash and cash equivalents (258) (6,426)
Cash and cash equivalents at beginning
period 461 6,978
Effect of foreign exchange rate changes (54) (91)
Cash and cash equivalents at end
of year 149 461
=========== =============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2019
Foreign
Reverse exchange Shares
acquisition translation Merger to be
Share reserve reserve reserve issued
Share premium (note (note (note (note Retained
Notes capital account 22) 22) 22) 22) earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December
2018 14,420 8,294 (4,430) 35 959 168 (25,526) (6,080)
Comprehensive
income/(loss)
for the year
Loss for the
year - - - - - - (5,812) (5,812)
Other
comprehensive
income - - - 184 - - - 184
--------- -------- ------------ ------------- -------- -------- ----------- ----------
Total
comprehensive
income/(loss)
for the year - - - 184 - - (5,812) (5,628)
Contributions by -
and
distributions
to owners
Share issued
(net of costs) 21 397 3,749 - - - - - 4,146
Share based
payments 26 - - - - - 239 - 239
Capital
contribution 18 - - - - - - 277 277
Total
contributions
by
and
distributions
to owners 397 3,749 - - - 239 277 4,662
At 31 December
2019 14,817 12,043 (4,430) 219 959 407 (31,061) (7,046)
========= ======== ============ ============= ======== ======== =========== ==========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2019
Foreign
Reverse exchange Shares
acquisition translation Merger to be
Share reserve reserve reserve issued
Share premium (note (note (note (note Retained
Notes capital account 21) 21) 21) 21) earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December
2017 as
previously
stated 14,404 8,232 (4,430) 78 959 26 (12,837) 6,432
Adjustment on
the adoption
of IFRS 15 - - - - - - (344) (344)
Prior year
adjustments - - - - - - (484) (484)
--------- -------- ------------ ------------- -------- -------- ----------- ---------
1 January 2018
as restated 14,404 8,232 (4,430) 78 959 26 (13,665) 5,604
Comprehensive
loss for
the year
Loss for the
year - - - - - - (11,861) (11,861)
Other
comprehensive
loss - - - (43) - - - (43)
--------- -------- ------------ ------------- -------- -------- ----------- ---------
Total
comprehensive
loss
for the year - - - (43) - - (11,861) (11,904)
Contributions -
by and
distributions
to owners
Share issued 21 16 62 - - - - - 78
Share based
payments 26 - - - - - 142 - 142
Total
contributions
by
and
distributions
to owners 16 62 - - - 142 - 220
At 31 December
2018 14,420 8,294 (4,430) 35 959 168 (25,526) (6,080)
========= ======== ============ ============= ======== ======== =========== =========
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2019
1. Accounting policies
General information
7digital Group plc is a public company, limited by shares and
incorporated in the United Kingdom (England and Wales) under the
Companies Act 2006..
The Group prepares its consolidated financial statements in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the EU. The financial statements have been
prepared on the historical cost basis, except for the revaluation
of financial instruments. The principal accounting policies set out
below have been consistently applied to all the periods presented
in these financial statements; except as stated below.
Basis of Preparation
Statutory accounts for the year ended 31 December 2019 have been
delivered to the Registrar of Companies. The financial information
for the year ended 31 December 2019 contained in these results has
been audited.
The financial information contained in these results has been
prepared using the recognition and measurement requirements of
International Financial Reporting Standards (IFRSs) as adopted by
the EU. The accounting policies adopted in these results have been
consistently applied to all the years presented and are consistent
with the policies used in the preparation of the financial
statements for the year ended 31 December 2019. New standards,
amendments and interpretations to existing standards, which have
been adopted by the Group for the year ended 31 December 2019, have
been listed below.
New standards and interpretations
a) New standards, interpretations and amendments effective from
1 January 2019.
New standards impacting the Group that have been adopted in the
annual financial statements for the year ended 31 December 2019,
and which have given rise to changes in the Group's accounting
policies are:
-- IFRS 16 Leases (IFRS 16) refer note 14
The Group adopted IFRS 16 using the modified retrospective
approach, with recognition of transitional adjustments on the date
of initial application (1 January 2019), without restatement of
comparative figures. The Group elected to apply the practical
expedient to not reassess whether a contract is or contains a lease
at the date of initial application. Contracts entered into before
the transition date that were not identified as leases under IAS 17
and IFRIC 4 were not reassessed. The definition of a lease under
IFRS 16 was applied only to contracts entered into or changed on or
after 1 January 2019.
b) New standards, interpretations and amendments not yet
effective.
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the group has decided
not to adopt early. The most significant of these is:
-- IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in
Accounting Estimates and Errors (Amendment - Definition of
Material)
-- IFRS 3 Business Combinations (Amendment - Definition of
Business)
-- Revised Conceptual Framework for Financial Reporting
New and amended standards and Interpretations issued by the IASB
that will apply for the first time in the next annual
financial statements are not expected to impact the Group as
they are either not relevant to the Group's activities or require
accounting which is consistent with the Group's current accounting
policies.
Going concern
Summary
On 21 February 2020, a short term loan of GBP500k was signed
with CSS Alpha (BVI) Limited. The loan is repayable over 12 months
in equal parts starting from 28 March 2020 with interest based on
1.5% of the outstanding balance. The loan is guaranteed by one of
the Directors.
On 3 September 2020, 7digital annouced the placing of
266,666,667 new Ordinary Shares of 0.01p each, which raised GBP6m
at an issue price of 2.25 pence per share. The net proceeds of the
fundraising will be used to meet the immediate working capital
requirements of the Group and support immediate and medium term
commercial growth opportunities, in particular within home fitness,
artist monetisation, and social media.
Background to and reasons for the placing and subscription
The music industry is undergoing a period of change and
opportunity whereby revenue sources are changing. and growing.
Whereas five years ago revenues were dominated mainly by music
sales and live performances, today streaming has displaced download
music sales and COVID-19 has shut down live performances for much
of 2020 and is likely to continue to impact live performances in
the medium term. In addition, as music streaming has gained in
popularity, music listening on social video platforms has begun to
outpace DSP streaming services.
7digital has an advanced, scalable, cloud-based platform and the
Directors believe that the Company is positioned to take advantage
of new sources of growth brought on by the changing industry as
well as the new opportunities and models accelerated by the
COVID-19 pandemic. This is supported by a number of renewals and
new contracts over the last year, including with Triller, eMusic
and a global technology company in August 2020. In particular
7digital has identified potentially significant emerging
opportunities within social media, home fitness and artist
monetisation channels.
COVID-19
In March 2020, the World Health Organisation declared a global
pandemic due to the COVID-19 virus that has spread across the
globe, causing different governments and countries to enforce
restrictions on people movements, a stop to international travel,
and other precautionary measures. This has had a widespread impact
economically and a number of industries have been heavily impacted.
This has resulted in impacts on certain industries and a more
general need to consider whether budgets and targets previously set
are realistic in light of these events.
As described above, the COVID-19 pandemic has impacted our
business but the Board believes that the business is well
positioned to be able to navigate through the impact of COVID-19
due to the strength and flexibility of its service proposition.
Brexit
The United Kingdom ('UK') formally left the European Union
('EU') on 30 January 2020. The period of time from when the UK
voted to exit the EU on 23 June 2016 and the formal process
initiated by the UK government to withdraw from the EU, or Brexit,
created volatility in the global financial markets. The UK now
enters a transition period, being an intermediary arrangement
covering matters like trade and border arrangements, citizens'
rights and jurisdiction on matters including dispute resolution,
taking account of The EU (Withdrawal Agreement) Act 2020, which
ratified the Withdrawal Agreement, as agreed between the UK and the
EU. The transition period is currently due to end on 31 December
2020 and ahead of this date, negotiations are ongoing to determine
and conclude a formal agreement between the UK and EU on the
aforementioned matters.
The Group operates subsidiaries in many countries. The Directors
currently deem that the effects of the UK's current transitional
period outside the EU and the impact of ongoing discussions with
the EU will not have a significant impact on the Group's operations
due to the global geographical footprint of the business and the
nature of is operations.
Facility
On 28 September 2020, the Group secured a GBP1m revolving credit
facility with Investec for a period of 36 months guaranteed by two
of the Directors; this attracts 6% interest above Investec bank
rate on the drawn portion of the facilty and 2% on the undrawn
portion.
Conclusion
The Directors have reviewed 7digital's going concern position
taking account of its current business activities, financial
forecasts and factors likely to affect its future financial
position, as set out in this Annual report which include 7digital's
objectives, policies and processes for managing its capital and its
financial risk management objectives. Considering the global
coronavirus (COVID-19) pandemic, the global economic uncertainties
and impact on delayed sales cycles, the Directors have undertaken
an elevated scrutiny to the cashflow forecasts covering a period of
at least 12 months from the date of approval of the financial
statements. Cashflow forecasts have been prepared based on a range
of scenarios including, but not limited to, no further debt or
equity funding, existing customer churn at different churn rates,
no new contracted sales revenue, delayed sales, cost reductions,
both limited and extensive, and a combination of these different
outcomes.
Having assessed the sensitivity analysis on cashflows including
the funding of GBP6m and the security of the newly agreed credit
facility, together with the significant current business momentum
from new customers including Triller, the launch of eMusic Live and
growing demand for streaming and digital music solutions, the
Directors strongly believe 7digital will continue to operate as a
going concern for the foreseeable future, being 12 months from
their signing of the financial statements.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 31 December
2019.
All subsidiaries are controlled by the Group and are included in
the consolidated financial statements; the Group controls an
investee if, and only if, the Group has:
-- Power over the investee (i.e., existing rights that give it
the current ability to direct the relevant activities
of the investee)
-- Exposure, or rights, to variable returns from its involvement with the investee
-- The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting
rights results in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
-- The contractual arrangement(s) with the other vote holders of the investee
-- Rights arising from other contractual arrangements
-- The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
Profit or loss and each component of OCI are attributed to the
equity holders of the parent of the Group and to the
non-controlling interests, even if this results in the
non-controlling interests having a deficit balance. When necessary,
adjustments are made to the financial statements of subsidiaries to
bring their accounting policies in line with the Group's accounting
policies. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of
the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities,
non-controlling interest and other components of equity, while any
resultant gain or loss is recognised in profit or loss. Any
investment retained is recognised at fair value.
Business combinations
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group. The
consideration transferred In the acquisition is generally measured
at fair value, as are the identifiable net assets acquired. Any
goodwill that arises is tested annually for impairment. Any gain on
a bargain purchase Is recognised in profit or loss immediately.
Transaction costs are expensed as incurred, except If related to
the issue of debt or equity securities.
The consideration transferred does not include amounts related
to the settlement of pre-exlstlng relationships, such amounts are
generally recognised In profit or loss.
Any contingent consideration payable is measured at fair value
at the acquisition date, if an obligation to pay contingent
consideration that meets the definition of a financial instrument
is classified as equity, then it is not remeasured and settlement
is accounted for within equity. Otherwise, other contingent
consideration is remeasured at fair value at each reporting date
and subsequent changes in the fair value of the contingent
consideration are recognised In profit or loss.
Subsidiaries
Subsidiaries are entitles controlled by the Group, the Group
controls an entity when it is exposed to, or has rights to,
variable returns from its Involvement with the entity and has the
ablity to affect those returns through its power over the entity.
The financial statements of subsidiaries are included In the
consolidated financial statements from the date on which control
commences until the date on which control ceases.
Loss of control
When the Group loses control over a subsidiary, it de-recognlses
the assets and liabilities of the subsidiary, and any
non-controllng interests and other components of equity. Any
resulting gain or loss is recognised in the profit or loss. Any
interest retained in the former subsidiary is measured at fair
value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated.
Unrealised gains arising from transactions with equity-accounted
investees are eliminated against the investment to the extent of
the Group's interest in the investee. Unrealised losses are
eliminated In the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
Revenue
The group comprises of mainly three types of revenues
1) Licencing fees (also known as B2B sales)
a. Setup Fees
b. Monthly development and support fees
c. Usage fees
2) Content ("download") revenues (also know as B2C sales)
3) Creative revenues
Each type of revenue is detailed below
Revenue comprises of:
I. Licensing revenues
7digital defines licensing revenues as fees earned both for
access to the company's platform and for development work on that
platform in order to adapt functions to customer needs. The Board
considers that the provision of Technology Licensing Services
comprises three separately identifiable components:
The description of the licence fees compromise three
categories;
1. Set-up fees : Set up fees which grant initial access to the
platform, allow use of our catalogue and associated metadata and
mark the start of work to define a client's exact requirements and
create the detailed specifications of a service.
2. Monthly development and support fees which cover the costs of
developer and customer support time. These are usually fixed and
are paid monthly once a service has been specified in detail; they
are calculated at commercial rates based on the number of developer
or support days required.
3. Usage fees which cover certain variable costs like bandwidth
which can be re-charged to clients with an administrative margin
are recognised at point in time based on usage.
II. Content ("download") revenues
Content revenues are recognised at the value of services
supplied and on delivery of the content. The group manages a number
of content stores and the income is recognised in the month it
relates to. Majority of the revenue converts directly to cash; any
accrued revenue converts to trade receivables within 30days.
III. Creative revenues
Creative revenues relate to the sale of programmes and other
content. 7digital also undertakes bespoke radio programming for its
customers. As the programmes are being created the associated
revenue is accrued/deferred until such time as the programme is
delivered and accepted by the client. At this time the accrued
revenue coverts to trade receivables. These mainly include the
production of weekly radio programmes, as well as the one-off
production of episodes. In case of one-off productions which
required the Group to provide progress reports to its customers and
where the company has no alternative use of the program produced,
the group recognises revenue over the period i.e. based on
percentage of completion, for
the rest of the regular programs and contents, where the company
does not own the IP, the group measures the revenue based on
delivery of the content i.e. at a point in time.
Contracts with multiple performance obligations
Many of the Group's contracts include a variety of performance
obligations, including Licencing revenue (set-up fees, monthly
revenue for using 7digital's API licence platform and usage fees),
however may not be distinct in nature. Under IFRS 15, the Group
evaluates the segregation of the agreed goods or services based on
whether they are 'distinct'. If both the customer benefits from
them either on its own or together with other readily available
resources, and it is 'separately identifiable' within the
contract.
To determine whether to recognise revenue, the Group follows a
5-step process:
- Identifying the contract with customers
- Identifying the performance obligations
- Determining the transaction price
- Allocating the transaction price to the performance obligations
- Recognising revenue when/ as performance obligations are satisfied.
Performance Obligations and timing of revenue recognition
Revenue generated from B2B customer contracts often identify
separate goods/services, with these generally being the access of
the API license platform, and the associated monthly licence
maintenance fees and content usage fees.
The list of obligations as per the contract that are deemed to
be one performance obligation in case of licencing revenue are
(B2B):
- The licenses provide access to the 7D platform
- The development and support fees which cover the costs of developer and customer support time
- Usage fees which cover certain variable costs like bandwidth and content.
A key consideration is whether licencing fees give the customer
the right to use the API Licence as it exists when the licence is
granted, or access to API which will, amongst other considerations,
be significantly updated during the API licence period.
The group grants the customer a limited, revocable,
non-exclusive and non-transferable licence in the Territory during
the Term, to use the 7digital API and the content to enable the
provision of the Music Service to the End Users via
Application.
Set-up fees represent an obligation under the contract, which is
not a distinct performance obligation, as the customer is not able
to access the platform without them. These are therefore spread
over the period of the contract agreed initially with the
customers.
Monthly licence maintenance fees indicate service contracts that
provide ongoing support over a period of time. Revenue is
recognised over the term of the contract on a straight-line
basis.
In the case of Creative Revenue, the sole performance obligation
is to deliver the content specified as per contract, whether this
be the delivery of regular content throughout the year (e.g. a
radio series), or the production of a longer, one-off episode.
The only obligation for the group is to deliver the content
production agreed in the contract. Control and risks are passed to
the customer on delivery of the episode produced, news bulletins
etc. The right to the IP varies from project to project. If the
customer suggests a specific programme idea to tender, they will
then own the underlying rights of the recordings and the IPR is
exclusive to customer; 7digital's only performance obligation would
be to produce the content.
In the case of one-off productions for an identifiable customer
contract where 7digital is required to update the client on the
progress of work completed, the Group applies an output method to
determine the stage of completion and amount of revenue to
recognize.
Payment terms vary depending on the specific product or service
purchased. With licence fees, the set-up fees element is invoiced
and paid upfront, while monthly maintenance revenues and usage fees
are normally invoiced on a monthly basis. In the case of download
sales, the cost is paid immediately by the customer upon download
of the music/songs content from the 7digital platform. In the case
of creative revenues, the payment terms are generally 50% on
signing with the balance on delivery. All contracts are subject to
these standard payment terms, to the extent that the parties
involved expressly agree in writing that the conflicting terms of
any agreement shall take precedence.
In the case of fixed-price contracts, the customer pays the
fixed amount based on a monthly schedule. If the services rendered
by the company exceed the payment, a contract asset (Accrued
Income) is recognised; if the payments exceed the services
rendered, a contract liability (Deferred Revenue) is
recognised.
Determine transaction price and allocating to each performance
obligation
The transaction price for licencing fees (set-up fees and
monthly licence fee) is fixed as per contract and is explicitly
noted in the contract. In the case of usage fees, the per gigabyte
fee is determined and agreed in the contract. In the case of
creative revenue, the transaction fees for radio services and
one-off series is determined by taking into account the length of
the production (this may vary for commercials, radio programs, tv
shows, series, etc.). Any variations in transaction price are
agreed and charged additionally depending on the obligations to be
performed. None of the five factors (i.e. variable consideration,
constraining estimates of variable consideration, the existence of
a significant financing component in the contract, non-cash
consideration, and consideration payable to a customer identified)
are particularly relevant to 7digital's customer contracts. The
transaction price included in 7digital's contracts is generally
easily identifiable and is for cash consideration.
Other adjusting items
Other adjusting items are those items the Group considers to be
non-recurring or material in nature that should be brought to the
readers' attention in understanding the Group's financial
statements. Other adjusting items consist of one-off acquisition
costs, costs related to non-recurring legal and statutory events,
restructuring costs and other items which are not expected to
re-occur in future years.
Foreign currency
For the purpose of the consolidated financial statements, the
results and financial position of each Group company are expressed
in Pounds Sterling, which is the functional currency of the
Company, and the presentation currency for the consolidated
financial statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions.
At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences arising on the settlement of monetary items
and on the retranslation of monetary items, are included in profit
and loss for the year.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average monthly rate
of exchange ruling at the date of the transaction, unless exchange
rates fluctuate significantly during that month, in which case the
exchange rates at the date of transactions are used.
Intangible assets
Externally acquired intangible assets are initially recognised
at cost and subsequently amortised on a straight-line basis over
their useful economic lives.
Intangible assets are recognised on business combinations if
they are separable from the acquired entity or give rise to
contractual/legal rights. The amounts ascribed to such intangibles
are arrived at by using appropriate valuation techniques.
Intangible assets (Bespoke Applications) arising from the
internal development phase of projects is recognised if, and only
if, all of the following have been demonstrated:
- The technical feasibility of completing the intangible asset
so that it will be available for use or sale
- The intention to complete the intangible asset and use or sell it
- The ability to use or sell the intangible asset
- How the intangible asset will generate probable future economic benefits
- The availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset; and
- The ability to measure reliably the expenditure attributable
to the intangible asset during its development.
The amount initially recognised for internally generated
intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria
listed above. Where no internally generated intangible asset can be
recognised, development expenditure is charged to profit or loss in
the period in which it is incurred.
Internally generated intangible assets are amortised over their
useful economic lives on a straight-line basis, over 3 years.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchased price, cost includes directly
attributable costs and the estimated present value of any future
unavoidable costs of dismantling and removing items. The
corresponding liability is recognised within provisions.
Depreciation is provision on all items of property, plant and
equipment, so as to write off their carrying value over their
expected useful economic lives. It is provided at the following
rates:
Property - 20% per annum straight line
Computer equipment - 33.33% per annum straight line
Fixtures and fittings - 33.33% per annum straight line
Impairment of tangible and other intangible assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e.
the higher of value in use and fair value less costs to sell), the
asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
('CGUs'). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is
not reversed.
Cash and cash equivalent
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term, highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Government grants
Government grants, including research and development credits
are recognised when it is reasonable to expect that the grants will
be received and that all related conditions will be met, usually on
submission of a valid claim for payment. Grants of a revenue nature
are credited to income so as to match them with the expenditure to
which they relate.
Financial instruments
Financial assets and financial liabilities are recognised when a
Company becomes a party to the contractual provisions of the
instruments.
Initial Recognition:
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss and ancillary
costs related to borrowings) are added to or deducted from the fair
value of the financial assets or financial liabilities, as
appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through
profit or loss are charged to the Statement of Profit and Loss over
the tenure of the financial assets or financial liabilities.
Classification and Subsequent Measurement: Financial Assets
The Company classifies financial assets as subsequently measured
at amortised cost, Fair Value through Other Comprehensive Income
("FVOCI") or Fair Value through Profit or Loss ("FVTPL") on the
basis of following:
-- the entity's business model for managing the financial assets
and
-- the contractual cash flow characteristics of the financial
asset.
Amortised Cost:
A financial asset shall be classified and measured at amortised
cost if both of the following conditions are met:
-- the financial asset is held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows and
-- the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
In case of financial assets classified and measured at amortised
cost, any interest income, foreign exchange gains or losses and
impairment are recognised in the Statement of Profit and Loss.
Fair Value through OCI:
A financial asset shall be classified and measured at fair value
through OCI if both of the following conditions are met:
-- the financial asset is held within a business model whose
objective is achieved by both collecting contractual cash flows and
selling financial assets and
-- the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Fair Value through Profit or Loss:
A financial asset shall be classified and measured at fair value
through profit or loss unless it is measured at amortised cost or
at fair value through OCI.
All recognised financial assets are subsequently measured in
their entirety at either amortised cost or fair value, depending on
the classification of the financial assets.
For financial assets at FVTPL, net gains or losses, including
any interest or dividend income, are recognised in the Statement of
Profit and Loss.
Classification and Subsequent Measurement: Financial
liabilities
Financial liabilities are classified as either financial
liabilities at FVTPL or 'other financial liabilities'.
Financial Liabilities at FVTPL:
Financial liabilities are classified as at FVTPL when the
financial liability is held for trading or is a derivative (except
for effective hedge) or are designated upon initial recognition as
FVTPL.
Gains or Losses, including any interest expense on liabilities
held for trading, are recognised in the Statement of Profit and
Loss.
Other Financial Liabilities:
Other financial liabilities (including borrowings and trade and
other payables) are subsequently measured at amortised cost using
the effective interest method.
The effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid
or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) through
the expected life of the financial liability, or (where
appropriate) a shorter period, to the amortised cost on initial
recognition.
Interest expense (based on the effective interest method),
foreign exchange gains and losses, and any gain or loss on
derecognition is recognised in the Statement of Profit and
Loss.
Impairment of financial assets:
Expected credit losses are recognized for all financial assets
subsequent to initial recognition other than financial assets in
FVTPL category. For financial assets other than trade receivables,
as per IFRS 9, the Group recognises 12 month expected credit losses
for all originated or acquired financial assets if at the reporting
date the credit risk of the financial asset has not increased
significantly since its initial recognition. The expected credit
losses are measured as lifetime expected credit losses if the
credit risk on financial asset increases significantly since its
initial recognition.
Impairment provisions for trade receivables are recognised based
on the simplified approach within IFRS 9 using the lifetime
expected credit losses. During this process the probability of the
non-payment of the trade receivables is assessed. Thus probability
is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the
trade receivables For trade receivables, which are reported net,
such provisions are recorded in a separate provision account with
the loss being recognised within cost of sales in the consolidated
statement of comprehensive Income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision.
The impairment losses and reversals are recognised in Statement
of Profit and Loss.
De-recognition of financial assets and financial
liabilities:
The Company de-recognises a financial asset when the contractual
rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another party. If the Company
neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Company recognises its retained interest in the asset
and an associated liability for amounts it may have to pay. If the
Company retains substantially all the risks and rewards of
ownership of a transferred financial asset, the Company continues
to recognise the financial asset and also recognises an associated
liability for amounts it has to pay.
On de-recognition of a financial asset, the difference between
the asset's carrying amount and the sum of the consideration
received and receivable and the cumulative gain or loss that had
been recognised in OCI and accumulated in equity is recognised in
the Statement of Profit and Loss.
The Company de-recognises financial liabilities when and only
when, the Company's obligations are discharged, cancelled or have
expired. The difference between the carrying amount of the
financial liability de-recognised and the consideration paid and
payable is recognised in the Statement of Profit and Loss.
Financial liabilities and equity instruments:
-- Classification as debt or equity
Debt and equity instruments issued by the Company are classified
as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument.
-- Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by a Company are recognised
at the proceeds received.
Derivative financial instruments:
The Company enters into derivative financial instruments viz. a
residual of the convertible loan instrument. The Company does not
hold derivative financial instruments for speculative purposes.
Derivatives are initially recognised at fair value at the date the
derivative contracts are entered into and are subsequently
remeasured to their fair value at the end of each reporting period.
The resulting gain or loss is recognised in profit or loss
immediately.
Fair value measurement
A number of assets and liabilities included in the Group's
financial statements require measurement at, and/or disclosure of,
fair value.
The fair value measurement of the Group's financial and
non-financial assets and liabilities utilises market observable
inputs and data as far as possible. Inputs used in determining fair
value measurements are categorised into different levels based on
how observable the inputs used in the valuation technique utilised
are (the 'fair value
hierarchy'):
- Level 1: Quoted prices in active markets for identical items
(unadjusted)
- Level 2: Observable direct or indirect inputs other than Level
1 inputs and
- Level 3: Unobservable inputs (i.e. not derived from market
data).
The classification of an item into the above levels is based on
the lowest level of the inputs used that has a significant effect
on the fair value measurement of the item. Transfers of items
between levels are recognised in the period they occur.
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial
instruments Include
-- current liabilities (level 3) - Monte-Carlo model
Share-based payments
The fair value determined at the grant date is expensed on a
straight-line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest. Fair value is
measured by use of an appropriate valuation model. The
Black-Scholes option pricing model has been used to value the share
options plans.
Taxation
The tax expense for the period comprises current and deferred
tax. Tax is recognised in profit or loss, except that a charge
attributable to an item of income or expense recognised as other
comprehensive income is also recognised directly in other
comprehensive income.
The deferred tax charge is calculated on the basis of tax rates
and laws that have been enacted or substantively enacted by the
reporting date in the countries where the company operates and
generates taxable income.
Deferred income tax is recognised on temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements and on unused tax
losses or tax credits in the company. Deferred income tax is
determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each
reporting date. Recognition of deferred tax assets is restricted to
those instances where it is probable that taxable profit will be
available against which the difference can be utilised.
Leases
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for:
-- Leases of low value assets; and
-- Leases with a duration of 12 months or less.
IFRS 16 was adopted 1 January 2019 without restatement of
comparative figures.
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value
guarantee;
-- the exercise price of any purchase option granted in favour
of the group if it is reasonably certain to assess that option;
and
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised.
Right-of-use assets are initially measured at the amount of the
lease liability, reduced for any lease incentives received, and
increased for:
-- lease payments made at or before commencement of the
lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the group is
contractually required to dismantle, remove or restore the leased
asset.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease.
The effect of adoption of IFRS 16 as at 1 January 2019 :
GBP'000
Assets
Right-of-use asset 1,862
Less accruals (net) (126)
--------
Total assets 1,736
========
Liabilities
Lease liability (1,862)
Total liabilities (1,862)
========
The present value of the lease payments is based on applying a
discount rate which is either the interest rate implicit in
the lease or the incremental borrowing rate. The lease
liabilities as at 1 January 2019 can be reconciled to the operating
lease commitments as of 31 Decemer 2018 as follows:
GBP'000
Operating lease commitments as at 31 December
2018 2,902
Removal of elements not relevant to IFRS16 (service
charges) (719)
--------
2,183
Weighted average incremental borrowing rate as
at 1 January 2019 7.0%
Discounted operating lease commitments at 1 January
2019 1,862
========
Lease liability recognised at 1 January 2019 1,862
========
1.1 Critical accounting judgements and key areas of estimation uncertainty
In the application of the Company accounting policies, which are
described above, the directors are required to make judgements,
estimates and assumptions about the carrying amount of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period which the estimate is revised if the revisions affect
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Content cost of sales
Content cost of sales is determined at an average rate of sales
and is consistent with previous years. The directors believe that
this calculation is deemed to be the most effective method of
determining the true cost of content considering varied pricing
structures agreed with all the label suppliers and publishers.
Creative revenue
Management considers the detailed criteria for the recognition
of creative revenue as set out in the Group's accounting policy, in
particular whether the Group determines the appropriate
apportionment of revenue to the correct accounting period and
subsequent amount accrued or deferred at the year end.
Impairment of accounts receivables
The management and directors have made certain estimates and
judgements in the application of IFRS 9 when measuring expected
credit losses and the assessment of expected credit loss provisions
required for accounts receivable balances. (see note 16).
Other adjusting items
The management and directors considers items of income and
expenses as other adjusting items where the nature of the item, or
its magnitude, is material and likely to be non-recurring in nature
so as to assist the user of the financial statements to better
understand then results of the core operations of the group.
Details of other adjusting items are shown in note 3.
2. Revenue
2.1 Revenue from contracts with customer
The Group has disaggregated revenue into various categories in
the following table which is intended to:
-- depict how the nature, amount, timing and uncertainity of
revenue and cash flows are affected by economic data; and
-- enable users to understand the relationship with revenue
segments information provided in 2.2 below
Licensing Content Creative Total
2019 2018 2019 2018 2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Primary Geographical
Markets
UK 807 773 621 1,278 1,549 2,099 2,977 4,150
USA 2,198 2,279 592 632 - 88 2,790 2,999
Germany 1,397 7,333 117 70 - - 1,514 7,403
Denmark - 1,388 - 1,038 - - - 2,426
France 35 299 - - - - 35 299
Other 904 1,338 1,060 915 23 382 1,987 2,635
--------- ---------- --------- --------- --------- --------- --------- ----------
5,341 13,410 2,390 3,933 1,572 2,569 9,303 19,912
========= ========== ========= ========= ========= ========= ========= ==========
Product Type
Set-up fees 528 211 - - - - 528 211
Monthly service
fees and
usage fee 4,813 13,199 - - - - 4,813 13,199
Production - - - - 1,572 2,569 1,572 2,569
Download/streaming - - 2,390 3,933 - - 2,390 3,933
--------- ---------- --------- --------- --------- --------- --------- ----------
5,341 13,410 2,390 3,933 1,572 2,569 9,303 19,912
========= ========== ========= ========= ========= ========= ========= ==========
Contract Counterparties
Direct to
consumer
(online) - - 2,390 3,933 - - 2,390 3,933
B2B 5,341 13,410 - - 1,572 2,569 6,913 15,979
5,341 13,410 2,390 3,933 1,572 2,569 9,303 19,912
========= ========== ========= ========= ========= ========= ========= ==========
Timing of transfer of
goods and services
Over time 5,341 13,410 - - - 48 5,341 13,458
Point in
Time (on
delivery) - - 2,390 3,933 1,572 2,521 3,962 6,454
5,341 13,410 2,390 3,933 1,572 2,569 9,303 19,912
========= ========== ========= ========= ========= ========= ========= ==========
The aggregate amount of the transaction price of the remaining
performance obligations amounting to GBP335k (2018: GBP1,149k) are
all expected to be released within the next 12 months; GBP7k (2018:
GBP141k) released in the following year.
2.2 Business segments
For management purposes, the Group is organised into three
continuing operating divisions - Licensing, Content and Creative.
The principal activity of Licensing is the creation of software
solutions for managing and delivering digital content. The
principal activity of the Content division is the sales of digital
music direct to consumers. The principal activity of Creative is
the production of audio and video programming for broadcasters.
These divisions comprise the Group's operating segments for the
purposes of reporting to the Group's chief operating decision
maker, the Chief Executive Officer.
Licensing Content Creative Total
---------------------- ------------------ ------------------ ---------------------
2019 2018 2019 2018 2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue from
external
customers 5,341 13,410 2,390 3,933 1,572 2,569 9,303 19,912
---------- ---------- -------- -------- -------- -------- --------- ----------
Segment's
result (gross
profit) 4,993 12,739 469 849 835 1,139 6,297 14,727
Depreciation (50) (218) (22) (14) (5) (19) (77) (251)
Amortisation (228) (1,839) - - - - (228) (1,839)
Impairment - (4,077) - - - - - (4,077)
Other adjusted
cost-
development
costs
expensed
(see note
3) (162) (2,715) - - - - (162) (2,715)
Settlement
income
included
in Other
Income 1,000 1,000 -
Segment
profit/(loss) 5,553 3,890 447 835 830 1,120 6,830 5,845
Remainder
of other
income 103 371
Amortisation (415) -
of right to
use asset
Corporate
expenses (12,155) (18,341)
Financing
income - 31
Financing
costs (172) (101)
Tax charge (3) 334
Loss for the
year (5,812) (11,861)
========= ==========
Other segment GBP'000 GBP'000
items:
Capital
additions - 1,000
========= ==========
Revenue from the Group's largest customer in the year was
GBP1.0m (2018: GBP7.7m) and revenue from the second largest
customer in the year was GBP0.5m (2018: GBP2.4m) . There were no
other customers that formed greater than 10% of external revenues
within the years ended 31 December 2019 and 2018.
2.3 Geographical information
The Group's revenue from external customers and information
about its segments by geographical location is detailed below:
Revenue Non-current assets
------------------ ---------------------
2019 2018 2019 2018
Continuing Operations GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 2,977 4,150 1,498 1,304
United States of America 2,790 2,999 - -
Germany 1,514 7,403 - -
Denmark - 2,426 - -
France 35 299 - -
Rest of Europe 1,366 1,553 - -
Rest of World 621 1,082 - -
9,303 19,912 1,498 1,304
======== ======== ========== =========
All revenues are derived from the provision of services.
3. Other adjusting items
2019 2018
GBP'000 GBP'000
Impairment of intangibles (i) - (2,135)
Costs/impairment relating to closure of
French business (ii) - (992)
Costs/impairment relating to closure of
Denmark business (iii) (254) (1,237)
Development costs expensed on legacy Denmark
platform (iv) (162) (2,715)
Corporate restructuring releases/(provision)
(v) (694) (226)
Exceptional legal fees (vi) (464) -
Legal provision (vii) (228) -
(1,802) (7,305)
======== ========
(i) In 2018 the Group tested intangibles annually for
impairment, or more frequently if there are indications that the
assets might be impaired. Accordingly, certain bespoke applications
have been impaired during the year resulting in a charge of
GBP2,135k.
(ii) In 2018, due to the cessation of the French operations in
Snowite SAS, a provision of GBP287k has been made for closing down
the operations and an impairment of GBP705k for the intangible
assets, as the directors consider these have a zero fair value.
(iii) In May 2019 the Group sold select technology from the
Parent Company and its Denmark subsidiary, 24 -7 Entertainment ApS,
and transferred staff to TDC Group, a large telecommunications
company based in Denmark (see note 12). In 2019, a provision of
GBP254k has been made for the closing down of the Danish
operations. In 2018, fair value adjustments relating to goodwill of
GBP688k and to customer lists of GBP418k were made (see note 12)
and the 24-7 Entertainment ApS tangible assets of GBP131k were
fully impaired (see note 13).
(iv) During the normal course of business the group would have
capitalised GBP162k (2018: GBP2,715k) in respect of development
costs associated with the Denmark platform, which was sold in 2019
as described in (iii) above. Due to the sale of this platform these
costs have not been capitalised and are reflected in the profit and
loss account.
(v) During 2019, the Group incurred costs of GBP649k (2018:
GBP226k) to former directors on garden leave and for employee
redundancies all relating to organisational restructuring.
(vi) In 2019 the Group incurred legal fees in relation to
funding of GBP264k, legal costs relating to planning for supposed
insolvency GBP120k and finalisation of the settlement agreement
with Media-Saturn-Holding GBP80k.
(vii) During 2018 a civil action was brought by a former US
customer against the parent company for failure to deliver services
specified in their Term Sheet. No contract was ever put in place
with this customer. The breach of contract claim is for: i)
consequential damages for loss of future profits in an amount to be
determined at trial; ii) compensatory damages including but not
limited to the contract amount of USD200k; iii) punitive damages in
an amount to be determined by a jury; (iv) attorney's fees, costs,
and expenses; and (v) pre-and post-judgment interest. 7digital's
legal team made a motion to dismiss the claims, however in the
event that the claims are upheld, the Group estimates that damages
would be in the region of USD300k/GBP228k, with an appropriate
provision being made.
GBP1,582k (2018: GBP3,228k) of the Other adjusting items for the
year ended 31 December 2019 are deductible for corporation tax
purposes.
4. Operating loss for the year
Operating loss for the year has been arrived at after
charging:
2019 2018
GBP'000 GBP'000
Net foreign exchange loss 238 48
Amortisation of intangible assets 228 1,839
Amortisation of right to use asset (see 415 -
note 14)
Depreciation of property, plant & equipment 77 251
Profit on sale of fixed assets (125) (11)
Operating lease payments - land and buildings
(see note 23) - 1,290
Share-based payment expense (see note 26) 239 173
======== ========
5. Other operating income
In 2019, the Group agreed a settlement of EUR4m/GBP3.4m with
Media-Saturn-Holding GmbH , of which GBP0.5m was used as payment
for Shareholders fund (see note 18) and GBP1.9m cleared down
outstanding trade-related balances; resulting in a net settlement
income of GBP1,000k. As part of the settlement agreement
Media-Saturn-Holding GmbH agreed to forgive GBP250k of outstanding
loans plus associated unpaid interest of GBP27k. The total amount
forgiven was GBP277k which is disclosed as a capital contribution
(see note 18).
The remaining other operating income earned by the Group in the
current year of GBP103k (2018: GBP371k) relates to Research &
Development tax credits.
6. Reconciliation of non-IFRS financial KPIs
This note reconciles the adjusted operating loss to the adjusted
EBITDA loss. This note reconciles these key performance indicators
to individual lines in the financial statements. In the Directors'
view it is important to consider the underlying performance of the
business during the year. Therefore, the directors have used
certain alternative performance measures (AMPs) which are not IFRS
compliant metrics. The main effect has been that the APMs exclude
other adjusting items, amortisation, foreign exchange, depreciation
and share based payments to reflect the underlying cash utilisation
for the performance of the business. The APMs are consistent with
those established within the prior year annual report and their
derivation is set out in the table below.
Reconciliation of adjusted operating loss
and adjusted EBITDA loss 2019 2018
GBP'000 GBP'000
Statutory operating loss (5,637) (12,125)
Other adjusting items (see note 3) 1,802 7,305
Foreign exchange 238 48
Share-based payment expense 239 173
-------- ---------
Adjusted operating loss (3,358) (4,599)
Profit on sale of fixed assets (125) -
Depreciation and amortisation 720 2,090
Adjusted EBITDA loss (2,763) (2,509)
======== =========
7. Auditor's remuneration
2019 2018
GBP'000 GBP'000
Fees payable to the Company's auditor for
the audit of the Company's annual accounts 120 120
Fees payable to the Company's auditor for
other services to the Group
The audit of the Company's subsidiaries - -
pursuant to legislation
Total audit fees 120 120
-------- --------
Non-audit fees:
Other services - -
-------- --------
Total non-audit fees - -
-------- --------
Total fees payable to Company's auditor 120 120
======== ========
A description of the work of the Audit Committee is set out in
the Corporate Governance Statement and includes an explanation of
how auditor's objectivity is safeguarded when non-audit services
are provided by the auditor.
8. Staff costs
The average monthly number of persons employed by the Group
during the year, including executive directors, was 81 ( 2018:
147). Staff costs in the Group are presented in administrative
expenses.
2019 2018
No. No.
Number of production, R&D, and sales staff 65 121
Number of management and administrative staff 16 26
81 147
======== ========
2019 2018
GBP'000 GBP'000
Wages and salaries 4,659 6,294
Redundancy payments 259 97
Social security costs 573 854
Other pension costs 159 511
Share-based payments (note 26) 239 173
5,889 7,929
======== ========
Details of the directors' remuneration are provided in the
Directors Remuneration Report.
9. Finance income and cost
2019 2018
GBP'000 GBP'000
Bank interest receivable - 1
Rental deposit retained - 19
Other income - 11
-------- --------
Finance income - 31
======== ========
2019 2018
GBP'000 GBP'000
Shareholders interest payable (7) (64)
Other charges similar to interest (17) (37)
Interest expenses on leased liability (see
note 14) (148) -
(172) (101)
======== ========
10. Tax
Corporation tax is calculated at 19% (2018: 19.25%) of the
estimated assessable profit for the year.
2019 2018
Current tax GBP'000 GBP'000
UK corporation tax on the results for the - -
year
Foreign tax suffered 3 35
Adjustment in respect of prior period - (61)
-------- --------
Total current tax charge/(credit) 3 (26)
======== ========
2019 2018
Deferred tax GBP'000 GBP'000
Origination and reversal of timing differences - (374)
Adjustments in respect of prior periods - 66
-------- --------
Total deferred tax charge/(credit) - (308)
======== ========
Tax on loss on ordinary activities 3 (334)
======== ========
The charge for the year can be reconciled to the profit per
statement of comprehensive income as follows:
2019 2018
GBP'000 GBP'000
Loss before tax (5,809) (12,195)
-------- ---------
Tax at UK corporation tax rate of 19% (2018:
19.25%) (1,104) (2,317)
Fixed asset differences - 2
Expenses not deductible for tax purposes 136 940
Income not taxable for tax purposes (30) (208)
Additional deduction for R&D expenditure (34) (133)
Adjustments to R&D in respect of previous
periods 22 -
Adjustments to tax charge in respect of
previous periods - (61)
Adjustments to tax charge in respect of
previous periods - deferred tax - 66
Adjust closing deferred tax to average rate
of 19% (2018: 19%) - 752
Adjust opening deferred tax to average rate
of 19% (2018: 19%) (40) (651)
Deferred tax not recognised 979 1,459
Foreign taxation 3 35
Difference in tax rates (8) (219)
Tax credit receivable 79 309
Deferred tax movement on business combinations - (308)
Tax credit / (credit) 3 (334)
======== =========
At the balance sheet date, the Group has unrecognised deferred
tax assets of GBP5,880,728 at a rate of 17% (2018: GBP6,393,798
(17%)) in respect of unused trading tax losses which have not been
recognised on the grounds that there is insufficient evidence that
these will be recoverable. These assets will be recovered when
future tax charges are sufficient to absorb these tax benefits.
11. Earnings per share
Basic earnings per share is calculated by dividing the loss
attributable to shareholders by the weighted average number of
ordinary shares in issue during the year. IAS 33 requires
presentation of diluted EPS when a company could be called upon to
issue shares that would decrease earnings per share, or increase
the loss per share. For a loss-making company with outstanding
share options, net loss per share would be decreased by the
exercise of options. Therefore the antidilutative potential
ordinary shares are disregarded in the calculation of diluted EPS.
Total potential ordinary shares which are outstanding at 31
December 2019 are 19,059,858 (2018: 13,912,308) which relate to the
employee share options and shares to be issued to the non-executive
directors under the terms of their service contracts (see Directors
Report, Directors Remuneration Report and note 26).
Reconciliation of the profit and weighted average number of
shares used in the calculation are set out below:
31 Dec 2019
Weighted average Per share
Loss number of shares amount
Basic and Diluted EPS GBP'000 Thousand Pence
Loss attributable to shareholders: (5,812) 1,244,214 (0.47)
========= ================== ==========
31 Dec 2018
Basic and Diluted EPS GBP'000 Thousand Pence
Loss attributable to shareholders: (11,861) 399,430 (2.97)
========= ================== ==========
12. Intangibles
Bespoke Customer
applications list Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2018 8,215 509 688 9,412
Additions 803 - - 803
At 31 December 2018 9,018 509 688 10,215
Disposals (5,813) (509) (688) (7,010)
At 31 December 2019 3,205 - - 3,205
-------------- --------- --------
Accumulated Amortisation
and impairment
At 1 January 2018 3,167 88 - 3,255
Charge for the year 1,836 3 - 1,839
Impairment losses 2,840 418 688 3,946
At 31 December 2018 7,843 509 688 9,040
Charge for year 228 - - 228
Disposals (4,866) (509) (688) (6,063)
At 31 December 2019 3,205 - - 3,205
-------------- ---------- --------- --------
Net book value
At 31 December 2019 - - - -
============== ========== ========= ========
At 31 December 2018 1,175 - - 1,175
============== ========== ========= ========
At 31 December 2017 5,048 421 688 6,157
============== ========== ========= ========
Useful lives 3-5 years 3-5 years
============== ==========
Amortisation charges are included within the administrative
expenses within the Income Statement. The useful life of each group
of intangible assets varies according to the underlying length of
benefit expected to be received.
On 29 May 2019 the Danish Platform, with a carrying value of
GBP948k was sold to a Danish communications company, TDC Group for
GBP951k. The customer list and goodwill, initially originating from
the acquisition of Danish Platform, were deemed disposed.
13. Property, plant and equipment
Computer Fixture
Property equipment and fittings Vehicle Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January
2018 404 1,795 125 19 2,343
Additions - 197 - - 197
Acquisitions - - - - -
Released on disposals - (15) - (19) (34)
--------- ----------- -------------- -------- --------
At 31 December
2018 404 1,977 125 - 2,506
Released on disposals - (443) (5) - (448)
At 31 December
2019 404 1,534 120 - 2,058
--------- ----------- -------------- -------- --------
Accumulated depreciation
and amortisation
At 1 January
2018 368 1,522 120 9 2,019
Charge for year 36 210 5 - 251
Impairment losses - 131 - - 131
Released on disposals - (14) - (9) (23)
--------- ----------- -------------- -------- --------
At 31 December
2018 404 1,849 125 - 2,378
Charge for year - 77 - - 77
Released on disposals - (443) (5) - (448)
--------- ----------- -------------- -------- --------
At 31 December
2019 404 1,483 120 - 2,007
--------- ----------- -------------- -------- --------
Net book value
At 31 December
2019 - 51 - - 51
========= =========== ============== ======== ========
At 31 December
2018 - 128 - - 128
========= =========== ============== ======== ========
At 31 December
2017 36 273 5 10 324
========= =========== ============== ======== ========
14. Leases
The Group leased a property that originally ran until April
2023. In February 2020, on agreement with the landlord the lease
was terminated, and the Group vacated the premises. The Group has
adopted IFRS 16 on the date of application and determined the value
of the lease and the right to use asset based on the rental
payments from the period 1 January 2019 to April 2023.
Right-of-use asset
Land and
buildings
GBP'000
Right-of-use asset 1,862
Less accruals (net) (126)
-----------
As at 1 January 2019 1,736
Amortisation (415)
-----------
At 31 December 2019 1,321
===========
Lease liability
Land and
buildings
GBP'000
As at 1 January 2019 1,862
Interest expense 148
Lease payments (352)
-----------
At 31 December 2019 1,658
===========
Analysed:
Current 472
Non-current 1,186
-----------
Total 1,658
===========
The group terminated the existing lease contract in February
2020 and in August 2020, it signed a new lease for 3 years (see
note 27).
15. Investment in subsidiary undertakings
A list of the significant investments in subsidiaries, including
the name, country of incorporation and proportion of ownership
interest is given in note E to the Parent Company financial
statements.
16. Trade and other receivables
2019 2018
GBP'000 GBP'000
Trade receivable for the sale of
goods 1,851 4,610
Less: Provision for impairment
of trade receivables (1,014) (408)
-------- ----------
Net trade receivables 837 4,202
Other debtors 382 667
R&D credits receivable 412 815
Prepayments - 100
----------
Total financial assets at amortised
cost (excluding cash & cash equivalents) 1,631 5,784
============ ============
The average credit period taken on sales of goods and services
is 33 days (2018: 79 days). No interest is charged on receivables.
Trade receivables are provided for based on estimated irrecoverable
amounts from the sale of goods and services, determined by
reference to past default experience and likelihood of recovery as
assessed by the directors. Before accepting any new material
customer, the Group uses an external credit scoring system to
assess the potential customer's credit quality and defines credit
limits by customer. The directors believe that the trade
receivables that are past due but not impaired are of a good credit
quality. The Group adopts a policy that each new customer is
analysed individually for credit worthiness before the Group's
standard payment and delivery terms and conditions are offered.
The management assessed the requirement for general bad debt
provision under IFRS 9. The expected loss rates are based on the
combination of the Group's historical credit losses experienced
over the three-year period prior to the period end coupled with
forward looking information. Management also note that the Group
generally has a consistent recovery rate on trade and other
receivables, due to a significant amount of work being completed
for reputable businesses. However, Management does note that
dealings with smaller businesses can be difficult at times to
recover funds owed and as such, provisions have been raised based
on historic knowledge of each client's credit risk. On confirmation
that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated
provision.
Included in the Group's trade receivable balance are debtors
with a carrying amount of GBP0.3m (2018: GBP2.3m), which are past
due at the reporting date for which the Group has not provided as
there has not been a significant change in credit quality and the
amounts are still considered recoverable. The Group does not hold
any collateral over these balances. The average age of these
receivables is 97 days (2018: 60 days). During the year the Group
provided for certain accounts receivable balances relating to
revenue recognised during 2019, where the collection of the
outstanding amounts is uncertain.
As at 31 December 2019 the lifetime expected loss provision for
trade receivables is:
More More More
than than than
30 days 60 days 120 days
past past past Total
Current due due due GBP'000
Expected loss rate 2% 7% 20% 92%
Gross carrying amount 274 275 296 1,006 1,851
Loss provision 7 18 59 930 1,014
Customers that represent more than 5% of the total balance of
trade receivables are:
2019 2018
GBP'000 GBP'000
Customer A 350 2,329
Customer B 209 381
Customer C 162 261
Customer D 136 200
Customer E 117 192
Customer F 101 -
Movement in the allowance for doubtful debts:
2019 2018
GBP'000 GBP'000
Balance at the beginning of the
period 408 1,943
Impairment losses recognised 717 408
Written off as bad debt (111) (1,943)
--------
Balance at the end of the period 1,014 408
======== ========
In determining the recoverability of trade receivables the Group
considers any change in the credit quality of the trade receivable
from the date credit was initially granted up to the reporting
date.
17. Trade and other payables
Current Liabilities 2019 2018
GBP'000 GBP'000
Trade payables 3,101 4,990
Other taxes and social security 565 984
Other payables 674 500
Accrued costs 2,669 3,246
Corporation tax - 19
-------- --------
7,009 9,739
======== ========
Non-Current Liabilities
Other payables 676 1,066
676 1,066
======== ========
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 241 (2018: 171 days).
The Group has financial risk management policies in place to ensure
that all payables are paid within the credit time frame.
In March 2016 the Group acquired Snowite SAS (now 7digital
France SAS). As part of the acquisition it negotiated a reduction
in the amount of some of the existing liabilities within Snowite
SAS, at the time of the purchase, to EUR1.7m (GBP1.5m). Terms of
repayment were also agreed to be over 8 years starting on 7th April
2017. For the first two years repayments were set at 8% of the debt
and then at 14% for each year thereafter. No interest is payable.
The parent company has guaranteed the repayments of GBP245k.
A total amount of GBP1.0m (2018: GBP1.1m) remains repayable
under this agreement at the balance sheet date. Of this balance,
GBP0.7m (2018: GBP0.9m) falls due for repayment after more than one
year. On 16 September 2020 the Group received confirmation that the
long term portion of GBP676K was forgiven by the French
authorities.
The directors consider that the carrying amount of trade
payables approximates to their fair value.
18. Financial Liabilities
2019 2018
GBP'000 GBP'000
Current
Convertible
debt - 1,306
Embedded derivative - 257
-------- --------
- 1,563
======== ========
During the year the convertible loan from shareholders including
the derivative instrument have been converted and forgiven, through
the below series of events:
On 8 February 2019, GBP193,858 (including interest of GBP5,549)
of the GBP1.5 million Shareholder loan facility was converted to
19,385,843 ordinary shares of 1p each.
On 4 January 2019, Juke GmbH, a wholly owned subsidiary of
Media-Saturn-Holding GmbH, decided to discontinue their music
services and their contract with the Group. On 1 March 2019, a
settlement was agreed on the termination of all outstanding
contracts and commitments relating to the Juke music service for an
immediate payment by Juke of EUR4.0m. Further, Juke agreed to
forgive GBP250,000 of the principal amount of the convertible loan,
the balance of the principal amount of GBP500,000 was paid from the
proceeds of the termination settlement and all associated interest
payments totalling GBP27,239 were forgiven. The total amount
forgiven of GBP277k is accounted and disclosed as a capital
contribution in the statement of changes in equity.
On 7 June 2019, the remaining GBP585,932 (including interest
GBP24,241) of the GBP1.5 million facility was converted to
332,915,704 ordinary shares of 0.01p each.
19. Provisions
Provision
for closure Legal Other
Dilapidation of business provision provisions Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2019 125 288 - 15 428
Increase in provision - 255 228 91 574
Release of provision - (234) - - (234)
------------
At 31 December
2019 125 309 228 106 768
============= ============= =========== ============ ========
Of which is:
current 125 309 228 106 768
============= ============= =========== ------------ ========
Of which is:
non-current - - - - -
============= ============= =========== ============ ========
A dilapidations provision is held to cover the estimated costs
of returning the Group's main office space to as it was at the
commencement of the lease (see note 14).
On 4 October 2019, the Danish entity was liquidated by the local
authorities; a provision has been made of GBP255k for possible
associated outstanding liabilities.
In 2018 a provision of GBP288k relating to the closing of
operations in Snowite SAS was made; during 2019 GBP234k of this
provision has been utilised.
During 2018 a civil action was brought by a former US customer
against the parent company for failure to deliver services
specified in their Term Sheet. No contract was ever put in place
with this customer. The breach of contract claim is for: i)
consequential damages for loss of future profits in an amount to be
determined at trial; ii) compensatory damages including but not
limited to the contract amount of USD200k; iii) punitive damages in
an amount to be determined by a jury; (iv) attorney's fees, costs,
and expenses; and (v) pre-and post-judgment interest. 7digital's
legal team made a motion to dismiss the claims, however in the
event that the claims are upheld, estimate that damages would be in
the region of USD300k/GBP228k.
20. Deferred tax
The deferred taxation provision included in the Statement of
Financial Position, together with the charge/(credits) made to the
Income Statement is set out below:
Deferred
tax liability
GBP'000
At 1 January 2019 -
Charge/(credit) to income -
At 31 December 2019 -
===============
At 1 January 2018 308
Credit to income (308)
At 31 December 2018 -
===============
21. Share capital
2019 2018
No. of No. of
shares shares
Allotted, called up and fully paid:
Ordinary shares of 0.01p each 2,455,419,294 -
Ordinary shares of GBP0.01 each - 400,236,646
Deferred shares of 0.99p each 419,622,489 -
Deferred shares of GBP0.09 each 115,751,517 115,751,517
============== ============
2019 2018
Allotted, called up and fully paid GBP'000 GBP'000
At 1 January 14,420 14,404
Shares issued in the period
Capital fundraising 397 -
Issued to employees/directors in lieu of
salary - 15
Share options exercised - 1
-------------- ------------
At 31 December 14,817 14,420
============== ============
i. On 8 February 2019, GBP193,858 (including interest) of the
GBP1.5 million Shareholder loan facility was converted in to
19,385,843 ordinary shares of 1p each.
ii. In order for the Company to lawfully allot the shares as
described in iii and iv below, all the 419,622,489 shares of 1p
each were converted into 419,622,489 deferred shares of 0.99p each
and 419,622,489 ordinary shares of 0.01p each on 7 June 2019. The
deferred shares of 0.99p each carry limited voting rights.
iii. On 7 June 2019, GBP585,932 (including interest) of the
GBP1.5 million Shareholder loan facility was converted to
332,915,704 ordinary shares of 0.01p each; share premium was
increased by GBP552,640.
iv. On 7 June 2019, a number of shareholders, including Magic
Investments S.A. (a tech investment holding company) ("Magic") and
Shmuel Koch Holdings Limited ("SKH") subscribed for, an aggregate
of, 634,132,641 ordinary shares at 0.01p each, to raise GBP1.3
million (before expenses). Share premium was increased by
GBP1,204,852.
v. On 20 September 2019, 937,900,000 shares of 0.01p each were
issued to the market to raise GBP1,875k (before expenses); share
premium was increased GBP1,780,504.
vi. On 4 October 2019, a further 130,848,460 ordinary shares of
0.01p were issued to the market to raise GBP261,697; share premium
was increased by GBP210,527 net of share issue expenses.
22. Other reserves
The Reverse acqusition reserve was created upon the application
of reverse acqusition accounting relating to the purchase of
7digital Group Inc, by UBC Media plc on 10 June 2014.
The Foreign exchange translation reserve of GBP184k profit
(2018: GBP43k loss) relates to cumulative foreign exchange
differences on translation of foreign operations.
The Merger reserve relates to the difference between the nominal
value of shares issued as part of an acquistion and the fair value
of the assets transferred.
The Shares to be issued includes GBP231k (2018: increase GBP89k)
relating to the fair value at grant date of the share options that
can be exercised in future years and GBP8k (2018: GBP53k) for the
fair value of the shares to be issued to Non-Executive directors in
lieu of salary as at December 2019 (see Directors' Remuneration
Report pages 23 to 24 and note 26).
23. Operating lease arrangements
The only lease has been accounted for under IFRS 16 (see note
14). There are no short term operating leases.
24. Defined contribution pension schemes
The Group operates defined contribution retirement benefit
schemes for qualifying employees. The total cost charged to income
of GBP159k ( 2018: GBP511k) represents contributions payable to
these schemes by the Group at rates specified in the rules of the
plans. As at 31 December 2019, contributions due in respect of the
current reporting period of GBP41k had not been paid over to the
schemes (2018: GBP33k).
25. Related party transactions
During the year, the Group paid GBP6.4k (2018: GBP9.6k) to MIDiA
Research for music market research services, a company of which
Mark Foster was a director during 2019. At 31 December 2019, the
Group owed GBPnil (2018: GBP6.4k).
During the year, the Group invoiced and recognised GBP175k of
revenue to eMusic (a subsidiary of TriPlay Inc.), a group which
Tamir Koch was a director of during 2019. At 31 December 2019, the
Group was owed GBP209k; GBP164k of this amount has been provided
for at the year end.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Remuneration of key management personnel
The remuneration of the directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party Disclosures.
Further information about the remuneration of individual directors
is provided in the audited part of the Directors' Remuneration
Report.
2019 2018
GBP'000 GBP'000
Wages and salaries 999 704
Social security costs 113 101
Pension costs to defined contribution scheme 32 24
Share-based payments 283 -
-------- --------
1,427 829
======== ========
26. Share-based payments
30 members of staff hold options to subscribe for shares in the
Company under the 7digital Group plc enterprise management
incentive scheme (approved by the Board on 10 June 2014). The
Performance Share Plan is a "free" share award with an effective
exercise price of GBPnil. All awards are subject to an Earnings per
Share (EPS) performance condition. The performance period is three
years. Further details of these conditions are set out in the
Directors' Report. Awards are normally forfeited if the employee
leaves the Group before the awards vest.
Weighted Weighted
average average
exercise exercise
2019 Options price (pence) 2018 Options price (pence)
Outstanding at the beginning
of the period 13,912,308 - 5,428,899 -
Granted during the period - - 11,500,000 -
Forfeited during the
period (5,016,140) - (2,881,258) -
Exercised during the
period - - (135,333) -
------------- ------------------ ------------- ------------------
Outstanding at the end
of the period 8,896,168 - 13,912,308 -
============= ================== ============= ==================
Exercisable at the end
of the period - - - -
============= ================== ============= ==================
During the period, nil shares were exercised (2018: 135,333).
There are 8,896,168 options outstanding at 31 December 2019 (2018:
13,912,308) of which nil (2018: nil) are exercisable. Their
remaining weighted average contractual life is 604 days (2018:
1,224 days).
The fair value of the share options has been calculated using
the Black-Scholes model at the grant date. The key inputs into the
Black-Scholes model are detailed below:
2018 Options
Share price at date
of grant 5.85p
Exercise price 0.00p
Volatility 100%
Option life 3 yrs.
Risk-free interest rate 0.5%
At 31 December 2019 GBP61k (2018: GBP53k) was accrued for shares
to be issued to non executive directors under the terms of their
service contracts and as disclosed within the Directors' Report and
Directors' Remuneration.
Also included within these charges are equity settled share
based payment charges of GBPnil (2018: GBP31k) reflecting share
awards to non-executive directors during the year.
The total expense recognised for the year ending 31 December
2019 arising from equity-settled share-based payment transactions
amounted to GBP239k (2018 - GBP173k) and the share-based payment
reserve as at 31 December 2019 amounted to GBP407k (2018 -
GBP168k).
The issuance of shares relates to the shares issued to some
non-executive directors in lieu of their remuneration. Further
details can be found in the Directors' Remuneration Report.
27. Post balance sheet events
On 21 February 2020, a short term loan of GBP500k was signed
with CSS Alpha (BVI) Limited. The loan is repayable over 12 months
in equal parts starting from 28 March 2020 with interest based on
1.5% of the outstanding balance. The loan is guaranteed by one of
the Directors.
On 12 August 2020, following the termination of the old lease
(see note 14), a new lease agreement was signed with Labs relating
to a property in Camden, NW1. The initial period of the agreement
is for 35 months starting from 1 July 2020, with a total cost of
GBP1.4m.
On 3 September 2020, 7digital annouced the placing of
266,666,667 new Ordinary Shares of 0.01p each, which raised GBP6m
at an issue price of 2.25 pence per share. The net proceeds of the
fundraising will be used to meet the immediate working capital
requirements of the Group and support immediate and medium term
commercial growth opportunities, in particular within home fitness,
artist monetisation, and social media.
On 16 September 2020 the Group received confirmation that the
long term portion of GBP676K was forgiven by the French
authorities.
On 28 September 2020, the Group secured a GBP1m revolving credit
facility with Investec for a period of 36 months guaranteed by two
of the Directors; this attracts 6% interest above Investec bank
rate on the drawn portion of the facilty and 2% on the undrawn
portion.
The rapid spread of the coronavirus and resulting COVID-19
global pandemic has had a small impact on the Group, primarily on
cash-in; management have taken action to mitigate and minimise the
effect. The Group was already fully operational from home as a
result of existing infrastructure.
28. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to meet their financial obligations as they
arise while maximising the return to stakeholders. The capital
structure of the Group consists of cash and cash equivalents and
equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings as disclosed in
notes 21 and 22. The Group has external liabilities by way of the
debts owed on the purchase of Snowite SAS in March 2016 and as
disclosed in note 17. It does not have access to committed
borrowing facilities, and is not subject to externally imposed
capital requirements.
Categories of financial instruments
2019 2018
Financial assets at amortised GBP'000 GBP'000
cost
Cash and cash equivalents 149 452
Trade and other receivables 2,646 6,388
Financial liabilities at amortised
cost
Trade and other payables (7,004) (10,091)
Borrowings (Convertible Loan Note) - (1,306)
Put options (123) (196)
Financial liabilities at fair
value through profit and loss
Embedded derivative (see note
18) - (257)
======== =========
Put Options
As part of the 2016 acquisition of Snowite, the Group agreed
with three of the original institutional shareholders that if they
are unable to sell the 3,056,894 shares in 7digital Group they
received in the public market, 7digital Group plc would purchase
75% of their shares at a strike price of 8.75p over a 4-year period
starting from March 2016, 10% in year 1 and then c.21.7% each year
thereafter. As at 31 December 2019, the three institutional
shareholders still retain all their shares in 7digital Groupl plc.
The value of the options at 31 December 2019 is GBP123k (2018:
GBP196k). Adjustments to this provision are taken directly to the
Consolidated Income Statement within Administrative expenses. In
2019 this credit was GBP73k (2018: GBP47k). The financial liability
is included in note 18.
The carrying amounts of financial assets and financial
liabilities not carried at FVTPL approximate their fair values.
Financial instruments measured at fair value
2019 2018
GBP'000 GBP'000
Level 3
Embedded derivative (see note
18) - (257)
======== ========
The embedded derivative liabilty has been converted/forgiven
during the year as described in note 18.
Financial and market risk management objectives
It is, and has been throughout the year under review, the
Group's policy not to use or trade in derivative financial
instruments. The Group's financial instruments comprise its cash
and cash equivalents and various items such as trade debtors and
trade creditors that arise directly from its operations. The main
purpose of the financial assets and liabilities is to provide
finance for the Group's operations in the year.
Currency risk management
The Group has exposure to foreign currency risk due to
subsidiaries in France, Denmark and United States. The Group
manages the risk by holding cash in numerous currencies to avoid
foreign exchange charges on payments and receipts.
The carrying value of the Group's short-term foreign currency
denominated assets and liabilities are set out below
GBP BU's USD BU's DKK BU's
---------------------------------------------------------- -------------------------------- ----------------- ---------
2019 2018 2017 2019 2018 2017 2019 2018 2017
Assets/(Liabilities)
GBP - - - - - - - (538,151) (55,583)
USD 619,120 162,683 1,694,004 - - - - (41,484) (5,686)
EUR (511,810) 1,548,206 1,647,447 - 139 139 - (98,672) (6,361)
Other (440,127) (130,135) 59,403 (41,444) (63,473) (103,783) - - -
---------- ---------- ---------- --------- --------- ---------- ----- ---------- ---------
Totals (332,817) 1,580,754 3,400,854 (41,444) (63,334) (103,644) - (678,307) (67,630)
========== ========== ========== ========= ========= ========== ===== ========== =========
The majority of the Group's financial assets are held in
Sterling but movements in the exchange rate of the Euro and US
dollar against Sterling have an impact on both the result for the
year and equity. Sensitivity to reasonably possible movement in the
Euro and US dollar exchange rates can be measured on the basis that
all other variables remain constant. The effect on profit and
equity of strengthening or weakening of the Euro or US dollar in
relation to Sterling by 10% would result in a movement of +/-
GBP47k (2018: GBP142k) in relation to the Euro and +/- GBP44k
(2018: GBP44k) in relation to the US dollar.
Interest rate risk management and sensitivity
The Group's policy is to ensure that it maximises the interest
income on surplus cash. This involves placing cash in a mix of
fixed rate and floating rate short-term deposits. There is no
prescribed ratio of fixed to floating rate. Due to the current
level of cash and the current rates of interest the Group is not
exposed to any significant interest rate risk.
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with
creditworthy counterparties, as a means of mitigating the risk of
financial loss from defaults. The Group only transacts with
entities after assessing credit quality using independent rating
agencies and if not available, the Group uses other publicly
available financial information and its own trading records to rate
its major customers. The Group's exposure is continuously monitored
and the aggregate value of transactions concluded is spread amongst
approved counterparties. Credit exposure is controlled by
counterparty limits.
On going credit evaluation is performed on the financial
condition of accounts receivable. The credit risk on liquid funds
is limited because the counterparties are banks with high
credit-rating assigned by international credit-rating agencies. The
carrying amount of financial assets recorded in the financial
statements, which is net impairment losses, represents the Group's
maximum exposure to credit risk.
Liquidity risk management
The Group's policy throughout the year has been to ensure
continuity of funds. The Group manages liquidity risk by
maintaining adequate reserves and banking facilities by
continuously monitoring forecast and actual cash flows and matching
the maturity profiles of financial assets and liabilities.
Liquidity and interest risk tables
All trade and other payables are non-interest bearing and fall
due within one month. The agreed term of repayment of the loan
relating to the purchase of Snowite SAS is over 8 years starting
7(th) April 2017, payable in equal instalments with no
interest.
The following table sets out the contractual maturities
(representing the undiscounted contractual cash-flows) of financial
liabilities:
2019 2018
Within 12 months GBP'000 GBP'000
Trade payables 3,101 4,990
Other payables 325 222
Lease liability 472 -
-------- --------
3,898 5,212
======== ========
2019 2018
More than 12 months GBP'000 GBP'000
Other payables 676 870
Lease liability 1,186 -
-------- --------
1,862 870
======== ========
Fair value of financial instruments
The fair value of other non-derivative financial assets and
financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis
using prices from observable current market transactions.
Cash at bank and short-term bank deposits
Cash is held within the following institutions:
2019 2018 2017
GBP'000 GBP'000 GBP'000
Barclays
Bank 132 324 6,490
HSBC Bank 4 36 26
Bank of West 2 7 59
CIC Bank 11 23 15
Others - 71 388
149 461 6,978
29. Contingent liabiities
The group does not have any contingent liabilities.
2019 2018
Notes GBP'000 GBP'000
Assets
Non-current assets
Intangibles B - 1,176
Tangibles C 39 63
Right-of-use asset D 1,321 -
Fixed asset investments E - 1,000
1,360 2,239
Current assets
Trade and other receivables F 248 1,987
Contract assets - 252
Cash at bank and in hand 1 19
249 2,258
Current liabilities
Trade and other payables H (1,308) (4,344)
Loans and borrowings I - (1,306)
Derivative liabilities I - (257)
Contract liabilities - (417)
Lease liability D (472) -
Provision for liabilities and charges J (829) (517)
(2,609) (6,841)
Net current liabilities (2,360) (4,583)
Total assets less current liabilities (1,000) (2,344)
Non-current liabilities
Other payables H - (197)
Lease liability (1,186) -
Provision for liabilities and charges J - (111)
(1,186) (308)
Total liabilities (3,795) (7,149)
Net liabilities (2,186) (2,652)
Capital and reserves
Called up share capital K 14,817 14,420
Share premium account 12,043 8,294
Shares to be issued 407 168
Profit and loss account (29,453) (25,534)
Shareholders' deficit (2,186) (2,652)
Result for the year
As permitted by section 408 of the Companies Act 2006 the
Company has not prepared its own profit and loss account for the
year. 7digital Group plc reported a loss for the financial year
ended 31 December 2019 of GBP4,196k ( 201 8: loss GBP21,608k).
This Company Statement of Financial Position and related notes
were approved by the Board of Directors on 28 September 2020 and
were signed on its behalf by
Paul Langworthy, Director
Statement of changes in Equity for the year ended 31 December
2019
Profit
Share Shares and
Share premium to be Loss
capital account issued account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 14,420 8,294 168 (25,534) (2,652)
Comprehensive loss
for the year
Loss for the year - - - (4,196) (4,196)
-------- -------- -------- --------
Total comprehensive
loss for the year - - - (4,196) (4,196)
Contributions by and
distributions to owners
Shares issued 397 3,749 - - 4,146
Share based payments - - 239 - 239
Capital contribution - - - 277 277
Total contributions
by and distributions
to owners 397 3,749 239 277 4,662
At 31 December 2019 14,817 12,043 407 (29,453) (2,186)
Statement of changes in Equity for the year ended 31 December
2018
Profit
Share Shares and
Share premium to be Loss
capital account issued account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 14,404 8,232 26 (500) 22,162
Comprehensive loss
for the year
Prior year adjustments (805) (805)
Change in accounting
policy - IFRS 9 Financial
Instruments (see note
G) - - - (2,621) (2,621)
At 1 January 2018 14,404 8,232 26 (3,926) 18,736
Comprehensive loss
for the year
Loss for the year - - - (21,608) (21,608)
Total comprehensive
loss for the year - - - (21,608) (21,608)
Contributions by and
distributions to owners
Shares issued 16 62 - - 78
Share based payments - - 142 - 142
Total contributions
by and distributions
to owners 16 62 142 - 220
At 31 December 2018 14,420 8,294 168 (25,534) (2,652)
A. Principal accounting policies
7digital Group plc is a company incorporated in the United
Kingdom (England and Wales) under the Companies Act 2006.
The parent company financial statements are presented as
required by the Companies Act 2006. They have been prepared in
accordance with applicable law and accounting standards in the
United Kingdom. The Company balance sheet and related notes have
been prepared under the historical cost convention and in
accordance with Financial Reporting Standards 100 Application of
Financial Reporting Requirements (FRS100) and 101 Reduced
Disclosures Framework. The company has taken advantage of the
following disclosure exemptions in preparing these financial
statements, as permittd by FRS 101 Reduced disclosure
framework:
-- the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based payment;
-- the requirements of IFRS 7 Financial Instruments: Disclosures;
-- the requirements of paragraphs 91 to 99 of IFRS 13 Fair value measurement;
-- the requirement in paragraph 38 of IAS 1 Presentation of
Financial Statements to present comparative information in respect
of:
o paragraph 79(a)(iv) of IAS1:
o paragraph 118(e) of IAS 38 Intangible Assets
-- the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B,
38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of
financial statements;
-- the requirements of paragraphs 134 to 136 of IAS 1 Presenation of financial statements;
-- the requirements of IAS 7 Statement of Cashflows;
-- the requirements of paragraphs 30 and 31 of IAS 8 Accounting
policies, changes in accounting estimates and errors:
-- the requirement of paragraphs 17 and 18A of IAS24 Related party disclosures;
-- the requirements in IAS 24 Related party disclosures to
disclose related party transactions entered into between two or
more members of a group; and
-- the requirements of paragraphs 134(d) to 134(f) and 135(c) to
135(e) of IAS 36 Impairment of assets.
These financial statements are separate financial
statements.
Where required, equivalent disclosures are given in the Group's
consolidated financial statements in notes 1 to 29.
Foreign currency
Transactions in currencies other than the entity's functional
currency (foreign currencies) are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated at the rates prevailing on the
balance sheet date. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
profit and loss for the year.
Intangible assets
Intangible assets acquired as part of acquisition of a business
are stated at fair value less accumulated amortisation and any
impairment losses are stated at cost less accumulated depreciation
and impairment losses, if any.
Intangible assets (Bespoke applications) arising from the
internal or external development phase of projects is recognised
if, and only if, all of the following have been demonstrated:
- The technical feasibility of completing the intangible asset
so that it will be available for use or sale;
- The intention to complete the intangible asset and use or sell it;
- The ability to use or sell the intangible asset;
- How the intangible asset will generate probable future economic benefits;
- The availability of adequate technical, financial, and other
resources to complete the development and to use or sell the
intangible asset; and
- The ability to measure reliably the expenditure attributable
to the intangible asset during its development.
The amount initially recognised for internally generated
intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria
listed above. Where no internally generated intangible asset can be
recognised, development expenditure is charged to profit or loss in
the period in which it is incurred.
Internally and externally generated intangible assets are
amortised over their useful economic lives on a straight-line
basis, typically over 3 years.
Research expenditure is recognised as an expense in the period
in which it is incurred.
Impairment of tangible and other intangible assets
The Company reviews, at least annually, the carrying amounts of
its tangible and intangible assets compared to the recoverable
amounts to determine whether those assets have suffered an
impairment loss. Where an impairment loss subsequently reverses,
the carrying amount of the asset is increased to the revised
estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss had been recognised for the
asset in prior years.
Cash and cash equivalent
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term, highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Fixed asset investments
Investments in subsidiaries are accounted for at cost less
impairment in the Company's financial statements.
Classification
Financial instruments are classified and accounted for according
to the substance of the contractual arrangement, as financial
assets, financial liabilities or equity instruments. An equity
instrument is any contract that evidences a residual interest in
the assets of the company after deducting all of its liabilities.
Where shares are issued, any component that creates a financial
liability of the company is presented as a liability on the balance
sheet. The corresponding dividends relating to the liability
component are charged as interest expenses in the profit and loss
account.
Recognition and measurement
All financial assets and liabilities are initially measured at
transaction price (including transaction costs), except for those
financial assets classified as at fair value through profit or
loss, which are initially measured at fair value (which is normally
the transaction price excluding transaction costs), unless the
arrangement constitutes a financing transaction.
If an arrangement constitutes a financing transaction, the
financial asset or financial liability is measured at the present
value of the future payments discounted at a market rate of
interest for a similar debt instrument.
Impairment
Assets, other than those measured at fair value, are assessed
for indicators of impairment at each balance sheet date. If there
is objective evidence of impairment, an impairment loss is
recognised in profit or loss.
Share-based payments
The Company issues equity settled share based payments to
certain Directors and employees, which have included grants of
shares and options in the current year . The fair value determined
at the grant date is expensed on a straight-line basis over the
vesting period, based on the Group's estimate of shares that will
eventually vest. Fair value is measured by use of an appropriate
valuation model. The Black-Scholes option pricing model has been
used to value the share options plans.
Going concern
These financial statements have been prepared on the going
concern basis. Please refer to the Directors Reports on pages 15 to
19 of the Annual Report for further going concern commentary.
IFRS 9 "Financial Instruments"
IFRS 9 Financial Instruments replaces the existing guidance in
IAS 39 Financial Instruments Recognition and Measurement IFRS 9
Includes revised guidance on the classification and measurement of
financial Instruments, including a new expected loss model for
calculating impairment on financial assets as is set out in the
Group's accounting policy.
Impairment provisions for receivables from related parties and
loans to related parties are recognised based on a forward- looking
expected credit loss model. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset. For those where the credit risk has not
increased significantly since initial recognition of the financial
asset, twelve month expected credit losses along with gross
interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Leases
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for:
-- Leases of low value assets; and
-- Leases with a duration of 12 months or less.
IFRS 16 was adopted 1 January 2019 without restatement of
comparative figures.
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value
guarantee;
-- the exercise price of any purchase option granted in favour
of the group if it is reasonably certain to assess that option;
and
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised.
Right-of-use assets are initially measured at the amount of the
lease liability, reduced for any lease incentives received, and
increased for:
-- lease payments made at or before commencement of the
lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the group is
contractually required to dismantle, remove or restore the leased
asset.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease. When the group revises its estimate of the term
of any lease.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Company accounting policies, which are
described above, the directors are required to make judgements,
estimates and assumptions about the carrying amount of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period which the estimate is revised if the revisions affect
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Investment in subsidiary is carried at cost under IAS 27 in the
financials are to be tested for impairment at each reporting date
as per IAS 36. The impairment standard requires the management to
estimate the recoverable amount of the asset and compare it with
the carrying value in the books to measure any impairment. For
estimating the recoverable amount of the "Investment in subsidiary"
the management relies upon; the net asset position of the
subsidiary as on the balance sheet date, which brings the necessary
assurance about the recoverability of the investment.
There are no critical judgements, apart form those involving
estimates, that directors have made in the process of applying the
Company's accounting policies and that have the most significant
effect on the amounts recognised in the financial statements.
Employees
The average number of employees throughout 2019 was 14 ( 2018:
22). Staff costs amounted to GBP1.8m (2018: GBP1.9m). Information
about the remuneration of directors is provided in the audited part
of the Directors' Remuneration Report of the consolidated financial
statements.
B. Intangibles
Bespoke
applications
GBP'000
Cost
At 1 January 2019 2,086
Disposals (2,086)
At 31 December 2019 -
Amortisation
At 1 January 2019 910
Charge for year 228
Disposals (1,138)
At 31 December 2019 -
Net book value
At 31 December 2019 -
At 31 December 2018 1,176
At 31 December 2017 1,833
On 29 May 2019 the Danish Platform, with a carrying value of
GBP948k was sold to a Danish communications company, TDC Group (see
note 12) for GBP951k.
C. Tangibles
Computer
equipment
GBP'000
Cost
At 1 January 2019 and
at 31 December 2019 69
Depreciation
At 1 January 2019 6
Charge for year 24
At 31 December 2019 30
Net book value
At 31 December 2019 39
At 31 December 2018 63
At 31 December 2017 -
D. Leases
The Company leased a property that originally ran until April
2023. In February 2020, on agreement with the landlord the lease
was terminated, and the Company vacated the premises. The Company
has adopted IFRS 16 on the date of application and determined the
value of the lease and the right to use asset based on the rental
payments from the period 1 January 2019 to April 2023.
Land and
Right-of-use asset buildings
GBP'000
Right-of-use asset 1,862
Less accruals (net) (126)
-----------
As at 1 January 2019 1,736
Amortisation (415)
-----------
At 31 December 2019 1,321
===========
Land and
Lease liability buildings
GBP'000
As at 1 January 2019 1,862
Interest expense 148
Lease payments (352)
-----------
At 31 December 2019 1,658
===========
Analysed:
Current 472
Non-current 1,186
-----------
Total 1,658
===========
The company terminated the existing lease contract in February
2020 and in August 2020, it signed a new lease for 3 years (see
note 27).
E. Fixed asset investments
GBP'000
Cost
At 1 January 2019 and at 31 December
2019 21,769
Provision for impairment
At 1 January 2019 (20,769)
Impairment during the year (1,000)
At 31 December 2019 (21,769)
Net book value at 31 December 2019 -
Net book value at 31 December 2018 1,000
Net book value at 31 December 2017 3,665
Related subsidiaries, joint ventures and associates
Ordinary
shares held
at 31 December Principle Country of
2019 activity incorporation Registered office
Subsidiaries
Music streaming
and download England and
7digital Limited 100% services Wales ***
England and
7digital Creative Limited 100% Radio production Wales ***
England and
7digital Trading Limited 100% HR Services(2) Wales ***
369 Pine Street,
Delaware, Suite 103, San
Holding United States Francisco, CA
7digital Group, Inc. 100% company(3) of America 94104 USA
369 Pine Street,
Music streaming Delaware, Suite 103, San
and download United States Francisco, CA
7digital, Inc 100% services(3) of America 94104 USA
21 Rue Aristade
Briand Espace
Aristide
92170 Vanves
7digital SAS 100% Non-trading France France
D-202, Polite
Hermitage, Sec
18 Shivtej Nagar,
7digital Wing India Private Chinchwad Pune
Limited 100% Non-trading India MH 411019 India
Smooth Operations (Productions) England and
Limited 100% Dormant Wales ***
England and
Unique Interactive Limited 100% Dormant Wales ***
Oneword Radio Limited - England and
dissolved 28 January 2020 100%(1) Dormant Wales ***
UBC Interactive Limited
- dissolved 28 January England and
2020 100%(1) Dormant Wales ***
7digital ApS - dissolved
3 October 2019
SD Music Stores Limited
- dissolved 26 February
2019
7digital Projects Limited
- dissolved 22 October
2019
(1) indicates indirect investment of the company
(2) ceased trading on 31 March 2020.
(3) non trading from 1 January 2020, dissolved with its
immediate holding company, 7digital Group, Inc, on 22 May 2020.
*** registered office is Lower Lock, Water Lane, London UK NW1
8JZ.
The directors subjected the carrying value of investments to an
impairment test at the year end. The director's assessment
indicated that the carrying value of the investments in
subsidiaries should be fully impaired at 31 December 2019.
F. Debtors
2019 2018
Due within one year: GBP'000 GBP'000
Trade Debtors - 163
R&D credits receivable 139 281
Other debtors 109 143
Prepayments - 65
Amounts owed by group undertakings - 1,335
248 1,987
G. Amounts owed by related parties
The directors have reviewed the amounts owed by related parties
and believe there are significant doubts as to the future
recoverability of these balances, and as such, a provision for
doubtful debts (impairment loss) of GBP2.7m (2018: GBP21k) has been
raised in the Company statement of financial position.
H. Trade and other payables:
2019 2018
Current Liabilities GBP'000 GBP'000
Trade creditors 410 2,273
Other taxes and social security 391 175
Other creditors 248 14
Accruals 259 1,700
Amounts owed to group undertakings - 186
1,308 4,348
========
Non-Current Liabilities
Other payables - 197
- 197
========
I. Loans and borrowings
2019 2018
GBP'000 GBP'000
Current
Convertible debt - 1,306
Embedded derivative - 257
- 1,563
On 8 February 2019, GBP193,858 (including interest of GBP5,549)
of the GBP1.5 million Shareholder loan facility was converted to
19,385,843 ordinary shares of 1p each.
On 4 January 2019, Juke GmbH, a wholly owned subsidiary of
Media-Saturn-Holding GmbH, decided to discontinue their music
services and their contract with the Group. On 1 March 2019, a
settlement was agreed on the termination of all outstanding
contracts and commitments relating to the Juke music service for an
immediate payment by Juke of EUR4.0m. Further, Juke agreed to
forgive GBP250,000 of the principal amount of the convertible loan,
the balance of the principal amount of GBP500,000 was paid from the
proceeds of the termination settlement and all associated interest
payments totalling GBP27,239 were forgiven. The total amount
forgiven of GBP277k is accounted and disclosed as a capital
contribution in the statement of changes in equity.
On 7 June 2019, the remaining GBP585,932 (including interest
GBP24,241) of the GBP1.5 million Shareholder loan facility was
converted to 332,915,704 ordinary shares of 0.01p each.
J. Provision for liabilities and charges
Provision
for closure Legal
of businesses provision
(note Other (note
a) provisions b) Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 621 7 - 628
Provision for closure of Danish
operations 255 - - 255
Reduction in partial guarantee
of subsidiary loan (42) - - (42)
Release of provision for closure
of French operations (280) - - (280)
Litigation provision - - 228 228
Other - 40 - 40
At 31 December 2019 554 47 228 829
Of which is: current 554 47 228 829
Of which is: non-current - - - -
Note a
On 4 October 2019, the Danish entity was liquidated by the local
authorities; a provision has been made of GBP255k for possible
associated outstanding liabilities.
In 2018 a provision was made in the standalone books of the
parent company, as the parent company has guaranteed all the half
yearly repayments of a loan in the French entry Snowite SAS up to
30 April 2020. During the year the guarantee provision was reduced
by GBP42k representing the amounts paid against the loan in 2019 by
the French entity. At the year end, the parent company still
guaranteed EUR288k/GBP245k of future payments.
In 2018 a provision of GBP288k relating to the closing of
operations in Snowite SAS was made; during 2019 GBP280k of this
provision has been utilised.
Note b
During 2018 a civil action was brought by a former US customer
against the parent company for failure to deliver services
specified in their Term Sheet. No contract was ever put in place
with this customer. The breach of contract claim is for: i)
consequential damages for loss of future profits in an amount to be
determined at trial; ii) compensatory damages including but not
limited to the contract amount of USD200k; iii) punitive damages in
an amount to be determined by a jury; (iv) attorney's fees, costs,
and expenses; and (v) pre-and post-judgment interest. 7digital's
legal team made a motion to dismiss the claims, however in the
event that the claims are upheld, estimate that damages would be in
the region of USD300k/GBP228k.
k. Share capital
2019 2018
GBP'000 GBP'000
Allotted, called up and fully paid:
2,455,419,294 ordinary shares of 0.01p each
(2018: nil) 245 -
419,622,489 d eferred shares of 0.99p each
(2018: nil) 4,154 -
Nil ordinary shares of 1p each (2018: 400,236,646) - 4,002
115,751,517 d eferred shares of 9p each
(2018: 115,751,517) 10,418 10,418
i. On 8 February 2019, GBP193,858 (including interest) of the
GBP1.5 million Shareholder loan facility was converted in to
19,385,843 ordinary shares of 1p each.
ii. In order for the Company to lawfully allot the shares as
described in iii and iv below, all the 419,622,489 shares of 1p
each were converted into 419,622,489 deferred shares of 0.99p each
and 419,622,489 ordinary shares of 0.01p each on 7 June 2019. The
deferred shares of 0.99p each carry limited voting rights.
iii. On 7 June 2019, GBP585,932 (including interest) of the
GBP1.5 million Shareholder loan facility was converted to
332,915,704 ordinary shares of 0.01p each; share premium was
increased by GBP552,640.
iv. On 7 June 2019, a number of shareholders, including Magic
Investments S.A. (a tech investment holding company) ("Magic") and
Shmuel Koch Holdings Limited ("SKH") subscribed for, an aggregate
of, 634,132,641 ordinary shares at 0.01p each, to raise GBP1.3
million (before expenses). Share premium was increased by
GBP1,204,852.
v. On 20 September 2019, 937,900,000 shares of 0.01p each were
issued to the market to raise GBP1,875k (before expenses); share
premium was increased GBP1,780,504.
vi. On 4 October 2019, a further 130,848,460 ordinary shares of
0.01p were issued to the market to raise GBP261,697; hare premium
was increased by GBP210,527.
l. Post balance sheet events
Refer to the Group's post balance sheet events in note 27.
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